Weeks Left of Liquidity, A Laundry List of Unresolved Fundamental Threats
We have officially closed out November Friday and we are now heading into the final month of the trading year. Historically, December is one of the most reserved months of the calendar year with strong positive returns for benchmark risk assets like the S&P 500 along with a sharp drop in volume and significant drop in traditional volatility measures (like the VIX index). There is a natural, structural reason for this moderation. The abundance of market holidays, tax strategies and open windows for various funds all contribute to this norm. That said, there is another element that plays as significant a role in the seasonal pattern as any practical influence – if not more – and that is habit. Mere anticipation of quiet during this period does as much to ensure a self-fulfilling prophecy as the practical developments of the period. Yet, assumptions of quiet when the market as a whole – and most traders individually – have so much exposure to surprise financial squalls would be particularly poor risk management.
Looking ahead, it is first important to assess the practical time lines of full liquidity. The next two weeks (the first half of December) are only sheltered from unforeseen storms by expectations alone. It would be prudent to at least be engaged and dynamic in the markets through this period. The third week of the month will see position squaring take its toll on speculative positioning and liquidity. This is a useful time as we can establish where investors believe the most aggressive risk exposure is held (‘risk on’ or ‘risk off’) as they unwind anything with a shorter-duration holding period. Through the final full week of the year, the markets will be severely drained by market closures and limited time and market depth to meet the tax and portfolio redistribution windows. To general a strong market move – trend or even a severe drive – would take an exceptionally disruptive event for the financial system. I am concerned over the complacency in the market, but not so apprehensive as to believe we will tip the beginning of a lasting financial crisis through the final week of the year – and yes, it would be a bearish run if anything as there is virtually no chance of a sudden wave of greed that will bring investors back to such a fragmented and thin market.
That said, there is still plenty of potential/risk that conditions could deteriorate exponentially through the first half of the month owing to the convergence of structural and seasonal circumstances. In general, a near-decade of uninterrupted speculative advance has started to lose traction as market participants have recognized their dependence on extreme but limited monetary policy, the growth of securitized leverage and sheer self-enforcing momentum. In 2018, we have seen conviction built on that unreliable mix start to falter with severe bouts of momentum in February and October with sizable aftershocks in March and November. This speaks to the underlying conditions in the market that could fuel a sweeping fire if properly ignited by any of a number of systemic threats that we are tracking across the global markets. Trade wars, Fed policy, convergence of global monetary policy, lowered growth forecasts, breaks in trade relationship (Brexit, Italy, US,etc) and other issues are systemic threats that have gained some measure of purchase these past months. If there were a sudden panic spurred by recession fears for example, then the drain on liquidity naturally associated with this time of year could in turn amplify fear into a full-blown panic with systemic deleveraging into 2019.
Now Everything Fed-Related Carries More Consequence
There has been a notable shift in Fed policy intent, and the markets will be engrossed with interrupting exactly what this course correction will mean for the capital markets. Though there has been subtle evidence of a waning conviction in pace for some weeks, FOMC Chair Jerome Powell made it explicit (well, as explicit as their careful control of forward guidance would allow) in his prepared speech on the bond markets in which he remarked that the group was perhaps closer to its neutral rate than previously expected. Now, some would say that is merely practical observation that after three rate hikes in 2018, they have closed in on their projected ‘neutral rate’ range of 2.50 to 3.50 percent. We could still keep pace and extend the most hawkish forecasts and hit the top end of that scale. That is true, but we have to remember what the central bank’s primary monetary policy tool has been over the past half-decade.
It hasn’t been changes to the benchmark rate or adjustments to the balance sheet but rather forward guidance. They have gone to exceptional lengths to signal their policy intent without making promises for the course so that they could back away from extreme easing without triggering a speculative panic based on exposure leveraged by years of excess backed by the vaunted ‘central bank put’. If so much effort is being put into this tool, then changes should be taken seriously rather than downplayed for convenience of a comfortable trading assumption. If there was intent behind the subtle change in rhetoric, it is an effort to acclimate the markets in advance of an event whereby the forecast will be delivered in black-and-white without the ability to establish nuance before the market’s respond with speculative shock (an event like the December 19 rate decision whereby the Summary of Economic Projections will make explicit the rate forecasts).
If indeed this is the objective to temper the market before the frank forecast is offered, then each speaking engagement and key data update between now and then will carry greater consequence. In the week ahead, we have Powell testifying before the Joint Economic Committee, which is a perfect opportunity to slightly extend the effort to make its intentions known. Recognition of this undertaking is the first step. Establishing what it means for the Dollar with rate premium and risk trends that have found confidence in the central bank’s reassurances will be critical.
G20 Aftermath Produces an Official Communique and US-China Trade War Pause
Pop the corks. The G20 has agreed to an official communique while the US and Chinese Presidents made a breakthrough on the escalation of their escalating trade war. Yet, before we over-indulge in risk exposure build up, we should perhaps look further ahead to the hangover that confidence in which this development is likely to lead us. Typically, an official press briefing that all the leaders agree to (dubbed the ‘communique’) is routine. However, with the rise of populism in the global rank and subsequent deterioration of relationships, simply signing off a commitment to shared goals of growth and stability has become an exceptional milestone. The leading consensus heading into this gathering in Argentina was that no official briefing would be released as the United States would not approve anything that would set its America-first agenda into a negative light. Further, China would not sign off on a statement that cast its own policies as unfair trade.
Perhaps recognizing the deteriorating sentiment amongst businesses, investors and consumers globally; the other parties would not demand these inclusions as protest for making so little traction with their constant protests. The indirect references to US and Chinese policies were left out. That is not genuine progress but simply self-preservation. As for the more remarkable ‘breakthrough’ in US and Chinese relations, the countries’ leaders found enough common ground to compromise a pause in the rapid escalation of their trade war. For discussing key economic issues between the two countries, the US agreed to delay the increase in its tariff rate on $200 billion in Chinese imports from 10 to 25 percent due previously to take effect on January 1st. The threat made by President in the weeks preceding this gathering of adding another $267 billion in Chinese goods to the tax list didn’t seem to warrant specific reference – perhaps as a backdoor strategy or because it would assumed to be included.
This is a pause in the escalation of activities rather than a genuine path back to a state of normalcy where collective growth is the foundation for the global economy. This is the bare minimum for registering an ‘improvement’ in relations, and it will be this thin veneer of progress that will truly test the market’s appetite to source anything of ancillary value to build up speculative exposure. I doubt this will inspire a true effort to significantly build up exposure in these unsteady times. In years past, such a development may have spurred the next leg of a yield chase; but recognition of the risk/reward imbalance is far too prominent nowadays. The question is how long this pause in an explicit outlet of fear lasts? Long enough to carry us through the end of the year? We’ll find out soon enough.

The G20 summit in Argentina begins today, where discussions around trade, Brexit, and tensions between Russia and Ukraine are expected to be the dominant topics to take centre-stage.
FOMC minutes released yesterday pointed towards another rate hike in December, with concerns that trade tensions and corporate debt could impact growth.
China’s official PMI fell to 50.0 in November from 50.2 last month, adding pressure on the country to implement more economic support measures amid the trade war.
The Dow Jones fell 0.11% on Thursday, whilst the S&P 500 and the Nasdaq Composite dropped 0.22% and 0.25%, respectively.
MSCI's index of Asia-Pacific shares outside Japan was last up 0.1%, making a 2.7% gain for the week and reflecting a rebound from the recent sell-off. The Nikkei was up 0.4%.
USD fell 0.07% against the yen to 113.39.
Pakistani Rupee plunges 6% in a suspected devaluation of the currency by its central bank, amidst ongoing bailout talks with the IMF.
US Crude rises 2.3%, settling at $51.45 yesterday as Russia is expected to accept OPEC’s decision in the need to cut oil production. Oil producers are expected to meet in Vienna next week to discuss supply cuts.
Gold is currently trading at $1,224.34 an ounce.
UK, US and Europe: The G20 summit begins today in Buenos Aires, Argentina. The outcome of which has become increasingly more significant due to recent weeks for a few reasons. Firstly, Donald Trump and Xi Jinping are expected to discuss trade this weekend, a meeting that will be watched very closely for clues on the path of the ongoing tensions between the US and China, after repetitive duty and tariff increases have amounted to a total of $360 billion across both sides. The escalation between the world's two largest economies has been a major threat to the global economy, the upcoming meeting will attribute to whether the world calms its nerves or continues on edge. Then there is Brexit, where Theresa May has the chance to secure international backing for as she attempts to sell her Brexit deal to world leaders at G20. Finally, amid heightening tensions and the flare-up of exchanges between Russia and Ukraine, Trump has cancelled a planned meeting with Putin, blaming specifically on Russia's failure to return ships and sailors seized from Ukraine last week in the Black Sea.
Oil prices have rebounded to par some of the steep losses in recent weeks, as confidence returned in the commodity on the back of expectations that Russia will co-operate with OPEC next week in Vienna, where the oil cartel and non-OPEC countries are to formulate an agreement on a supply cut that will stabilise crude prices. After hitting a four-year high at the beginning of October, the commodity has tumbled around 30% as sanctions against Iran's supply has proved to be less impactful than expected and concerns over a slowing global economy has curbed demand. Watch the IGTV featured video below, where industry advisor Malcolm Graham-Wood and Spencer Welch, director of oil markets at IHS Markit, discuss the future of the oil market.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Volkswagen and Tesco to build UK's largest free car-charging network, funding as many as 2,500 electric car charging bays.
Unilever has announced that Alan Jope will take over the helm from former CEO Paul Polman.
Deutsche Bank's offices in Frankfurt were raided by police yesterday over alleged claims of money laundering. Shares fell 3% on the back of the news.
Nio, one of the main Chinese electric car-makers and rival to Tesla, has announced that its U.S. head will step down.
Audi has unveiled a concept electric sedan car that is expected to challenge the Tesla Model S and to be in full production by late 2020.
Autonomy's co-founder and CEO, Mike Lynch, has been charged with defrauding shareholders in the sale of the company for $11bn to HP back in 2011.
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
A relief rally, now onto the next risk: The relief rally for market-bulls was sweet, but fleeting: it’s on to the next risk event now. Traders are being inundated by information, much of it speculative. Against this backdrop, volatility reigns: while off its highs still, the VIX is up 2.7 per cent on the day. To be clear, the Fed’s dovishness and Mr. Powell’s-famous-Put is underwriting the potential for future bullishness. But market participants can’t afford to let their guard down in this environment. We have the world’s most powerful politicians converging on Argentina, and with so many fissures running-through global political economy, the number of issues threatening market stability is considerable. One assumes that every generation thinks of themselves as existing at the end of history – reference: we can thank Fukuyama for that notion, perhaps – but it does sometimes feel that with the world-order trembling, we are living through a historical juncture of some description.
Markets want what’s familiar: Markets don’t like this. They desire support and stability and a protection of the status quo. It’s why, in part, seeing the Fed ostensibly step in to support financial markets is so emboldening, and sparks all sorts of bullish impulses. This is especially so within equity markets, which being able to gorge on cheap credit for years, became spoilt and fattened. The fundamentals of the system itself are shaky. Although this ought to be an inherent virtue when it comes to the nature of capitalism – the notion of creative destruction, as economist Joseph Schumpeter expressed it, whereby viable investments prosper, and wasteful inefficiencies are purged – for the better part of a decade, policy makers (rightly or wrongly) have sought to resist this process to maintain a semblance of economic constancy and social confidence.
Withdrawal symptoms: The problem is weening the macroeconomy and financial markets off the opiate. This is what the Fed is ultimately attempting to do, but with capital having allocated itself to places it ought not to have, removing the support from the system, along with the perverse incentives it produced, is proving no simple task. The Fed yesterday morning – articulated in Powell’s speech – almost certainly backed down in the face of the implicit pressure applied by markets. The message was clear from marker participants: we don’t like the risks of macroeconomic and geopolitical instability, we think growth will slow, we need support, otherwise we’ll melt-down. And so, in the tradition of Fed board’s gone by, Powell did. The message was only affirmed in this morning’s FOMC Minutes: the idea of “further hikes” passed December is debatable, because economic forecasts are softer, and there exists too many risks that could undermine the Fed’s objectives.
Inflation waning? One of these objectives, when looking at the Fed’s strict mandate, is inflation targeting, and it appears that fundamental inflation is petering out once again. Market participants have cooled on the idea of that inflation risk is high, primarily due to a downgrade in growth forecasts and the recent dumping in oil prices. The Fed’s chosen inflation measure, the PCE Index, printed overnight, and revealed inflation slipped below the Fed’s target level of 2 per cent by more than forecast. The number came in at 1.8%. It’s not to say the risk of inflation has disappeared: wages growth is on the up in the US, which could conceivably feed into higher prices – not to mention the effect tariffs or (an unlikely) turnaround in oil prices could have on future inflation. However, as the markets understand things for now, inflation isn’t a bug bear, and that gives an assurance that the Fed will stay steady.
The G20: In the bigger picture: it’s about this weekend’s G20 Summit. The trade war, Brexit, oil prices and global economic prospects are the big talking points; but underneath those we also have new tensions between Russia and the Ukraine, Italy and its fiscal situation, the Saudi’s and the controversy surrounding the Khashoggi murder, along with a myriad of regional issues faced around the globe. It’s a true tinderbox, that unsurprisingly would have world leaders, and thus market participants, very anxious. The core dynamic appears to be that those with the power to influence the direction of the political-economic world order have no interest in preserving it. Trump’s America is descending into paranoid isolationism, China wishes to reshape the neoliberal system to serve its long term national interest, the Russians are apparently trying to consolidate their regional interests, while the Europeans are busy naval gazing and questioning how to keep a unified Europe together at all.
Trade War: Presumably, traders will do their best to ignore the structural power struggles and all the comparatively smaller issues dampening market sentiment and just focus on what will come out of the Trump-Xi dinner date. One would have to be utterly naïve to believe a breakthrough is upon us here. It’s unimaginable – granted, maybe only for those who lack a rich enough imagination – that either side will compromise its strategic interests. President Trump will want concessions from the Chinese before doing a “deal”, the likelihood of which seems very low. China possesses a long-term strategy for its nation and economy – one that extends passed the speedbump that is the Trump Presidency. Compromising the future to appease a bombastic American populist leader in the present is counterproductive. Both sides must know this, and that they are not on the same page right now, whatever the benefits may be. The likely outcome from the weekend will surely be a piecemeal statement committing to ongoing talks, as always seems to emerge from the talk-fests.
Price activity overnight: The price action overnight reflecting the underlying market dynamic described so far has been quite subdued. European indices caught up with their North American and (some) Asian counterparts to put in its own post-Powell relief rally. US equities lost steam however, but in late trade look poised to close 0.3 per cent higher for the day. US Treasuries whipsawed on shifting sentiment relating to interest rates, with the yield on the 2 Year Note is currently at 2.81 per cent and the yield on the 10 Year note is 3.03 per cent. In currencies, the US Dollar is effectively flat, the EUR is slightly higher, the Yen has experienced a haven bid along with Gold, the Pound fell on Brexit fears, and the risk off tone sent the A-Dollar below 0.7300. Finally, commodities are slightly up: oil benefitted from news that Russia was prepared to cooperate with Saudi Arabia on production cuts, but copper is slightly lower.
ASX today: Promisingly for Australian equity market bulls, SPI futures are indicating a 12-point jump at the open for the ASX200, in line with the late run on Wall Street. The ASX experienced an immediate pop-higher at yesterday’s open, but the price action was dull and middling throughout the day. Overall, volume was strong, breadth was healthy, and the large-cap heavy weights in the materials and financials sectors added 13 and 10 points to the index, respectively. Growth stocks were big higher as expected, while defensive sectors were somewhat ignored. Private Capex figures were released and didn’t rock markets too much: it came in below expectations, but there were signs non-mining investment is turning around. The day ahead from a technical perspective should be assessed on whether the ASX200 can clear the small resistance hurdle at 5780 or so. But given what’s on for the weekend though, one shouldn’t be surprised or disheartened if that doesn’t happen today.

Fed hints that future interest rate rises may be lower than anticipated. Whilst Wall Street saw it's 5th biggest daily increase Asian stocks also gained as a result, the Nikkei saw a 0.9% increase whilst SoftBank rose over 3% and Nintendo a further 4%.
Trump announced yesterday that he is exploring new auto tariffs with a view to promote domestic production. This comes as part of an ongoing Trump Administration tariff war.
Georgia elects first female president. Salome Zurabishvili won the vote with a 59% majority
Mitsubishi Heavy Industries Limited was ordered to pay up to 150 million won to 28 South Koreans who were used as forced labour by the company in World War Two.
Bitcoin gains heading for biggest increase since April. Providing some relief after the 32% loss this month
Intu takeover worth £2.8 Billion scraped. The shopping network cuts dividends in attempt to maintain construction investment.
Asian overnight: Equities surged after Jerome Powell made a speech widely viewed as dovish. The S&P 500 posted its best day since March, with tech and consumer discretionary shares leading the way. Asian markets also bounced as investors pinned their hopes on a slowdown in the pace of Fed tightening after one more hike in December.
UK, US and Europe: Today’s FOMC minutes are something of an afterthought following the Powell speech, but we do have plenty of German and eurozone data, and investors should also watch out for US existing home sales, after new home sales fell to their lowest level since March 2016. Also watch UK banks, after the release of the BoE’s forecasts on a ‘no deal’ Brexit scenario.
Russia-Ukraine frictions result in Ukraine calling on Nato to send ships to the Sea of Azov. This follows Russia opening fire on three Ukrainian ships on Sunday. Nato are yet to respond to this plea, however Chief Jens Stoltenberg on Monday called for Russia to free the Ukrainian ships and captive sailors.
Economic calendar - key events and forecast (times in GMT)
8.55am – German unemployment (November): unemployment rate to hold at 5.1%. Markets to watch: EUR crosses

7pm – FOMC minutes: no change was made in policy, but the minutes will be key for USD movement this week. Markets to watch: USD crosses

11.30pm – Japan unemployment rate (October): rate to rise to 2.4% from 2.3%. Markets to watch: JPY crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Unilever 10 year CEO Paul Polman to be succeeded by Alan Jope after retirement
Phoenix Group reported cash generation of £1.3 billion for 2018, exceeding its target of £1 - £1.2 billion.
Rio Tinto will develop a ‘technologically advanced’ mine in Western Australia, with construction to start next year and production expected in late 2021.
Revolut given permission to expand the fintech firm into Japan and Singapore
Adecco upgraded to buy at Goldman
Total upgraded to neutral at JPMorgan
Cobham upgraded to buy at Berenberg
Iliad upgraded to equal-weight at Morgan Stanley
BASF downgraded to equal-weight at Barclays
Equinor downgraded to underweight at JPMorgan
ISS downgraded to sell at Goldman
Senior downgraded to neutral at JPMorgan
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

A game of chicken: Did Powell just blink? That’s how last night’s speech from the Fed chair is being interpreted. Debate has raged whether in the face of financial market turmoil, the Fed will be forced to cool its rate-hike rhetoric. Powell’s speech – and this is speculative – may have represented this. Gone was the talk of rates being “a long way” from neutral, and that rates may need to move “past (the) neutral” rate. Instead, it was replaced with the key comment interest rates are “just below” the neutral range, and that future rate hikes, as Fed Vice President Richard Clarida implored yesterday, will be “data dependant”. Perhaps we saw last night, in the tradition of many-a Fed Chair gone before, the latest incarnation of a “Fed-put” – that is, this time around, a “Powell-put”, which will underwrite financial market strength at the first sign of true-trouble.
Rates and bonds: The reactions in financial markets have been predictable, but assertive. US Fed fund futures suggest that traders have heard enough to justify pricing in an 80 per cent chance of a Fed-hike next month. But naturally, the shifting of expectations has been seen in the pricing for rate hikes in 2019. The Fed’s last dot-plots implied 3 hikes for next year – and markets got close to pricing the full three at stages only just over a month ago. We are now seeing just the one, and for some very dovish folk, even that’s too bullish. The short end of the US Treasury curve is manifesting the shift in sentiment: the benchmark 10 Year Treasury note is yielding 3.05 per cent currently, but the yield on interest rate sensitive 2 Year note has fallen back to 2.80 per cent, taking the spread between those two assets back to 25 basis points.
Currencies: The US Dollar has been ubiquitously dumped by extension of the fall in rate expectations and yields on US Dollar denominated assets. Even despite no sort of counterbalancing good news to prop-up any of the other major world-currencies, the effect of the weaker green back has been spread evenly across the G10 heat-map. The GBP and EUR, which are in as vulnerable a place as ever due to ongoing Brexit drama, are up to the 1.2840 and 1.1380 levels, respectively. The traditionally risk-off Japanese Yen has appreciated slightly, as did gold, which is trading at $US1228 per ounce, and the embattled Chinese Yuan climbed to fetch 6.93. While the highly liquid risk-proxies, the New Zealand Dollar and Australian Dollar, have spiked to 0.7320 and 0.6880, respectively.
Equities: The greatest action of course occurred in Wall Street equity markets post-Powell’s speech. The major indices have sky rocketed on the relief that discount rates may be steadying their rise and the tightening of monetary policy conditions may be nearing its zenith. It was the high-multiple, growth and momentum stocks that led the charge, predictably. The NASDAQ – at time of writing, with about an hour left in the US session – has rallied 2.30 per cent. The mega-cap laden Dow Jones is also up over 2 per cent, while the comprehensive S&P500 is up by just under 2 per cent. European indices missed out on the fun, closing well before Powell’s speech. However, futures markets are exhibiting early signs that European markets will join their North American cousins in the relief rally upon their open later today.
When bad news is good news: Maybe this a grand statement inspired by the major plot twist markets experienced overnight, courtesy of Fed Chair Powell’s dramatic change of tact, entering the last stanza for financial markets in 2018. But the price action and sentiment shift seen in last night’s trade does appear a microcosm of the perpetual battle faced by central banks for perhaps decades, if not at the very least, since the Global Financial Crisis. Asset markets appear dictated not by fundamental strength in the macro-economy, but by the central bank-controlled credit-cycle that investors have come to rely upon for their investment cues. It’s a contentious debate, and one that hasn’t been resolved. However, last night’s developments hark back to years gone by when bad economic news was judged to be good news for financial markets, and good economic news was judged to be bad.
Let the good times roll? Without delving too deeply into the philosophy behind the idea – although suggested reading would include the work of Hyman Minsky – the contradicting information received last night pays heed to this notion. Aside Fed Chairperson Powell’s speech, overnight there was a raft of news that highlighted the world is experiencing slower economic growth, and that the global economy has quite possibly reached peak growth for this cycle. A speech for BOE Governor Mark Carney highlighted the dire economic consequence to the UK economy in the event of a no-deal Brexit. US GDP came in a smidgeon below forecasts and affirmed the view the US economy may gradually slow-down in 2019. And Christine Lagarde, the Managing Director of the IMF, stated last night the global economy may be slowing faster than expected. Nevertheless, Fed policy hogged the limelight, with the prospect of marginally more accommodative monetary policy conditions inspiring risk-on behaviour all the way from, credit, to bonds, to equities, to currencies.
The ASX: SPI futures are pointing to an ASX200 that will relish the global relief rally today. The ASX200 ought to jump about 30 points at the open, likely breaking through 5745-resistance in the process, and opening upside to the next key level at about 5780. Volumes have been quite high across the ASX this week, and to the presumed delight of the bulls, the strength is demonstrating signs of running deep. For one, although the ASX200 was down 0.06 per cent for the day yesterday, it was the small and mid-cap stocks demonstrated the most upside. Really, it was the materials space once more, confronting falling iron ore prices, that sucked 6 points from the index yesterday and was responsible for the markets weakness. Overall, a true bullish turnaround is still some way off, but the chance of a true turnaround in the market has increased meaningfully overnight.

Asian equities gained as investors weighed in comments from Federal Reserve officials and a possible breakthrough in US-China trade war. Shares in Hong Kong and China led the gains with the Hang Seng Index climbing 0.5% and the Shanghai Composite gaining 0.7%.
Oil crude was up with WTI gaining 0.9% to $52.02 a barrel after a US industry report signaled shrinking gasoline surplus. Concerns of sanctions to Russia following its sea clash with Ukraine and Saudi’s vow to cut production in December are also pressuring upwards historically low oil prices.
Gold fell the most in two weeks and finally found support above $1210. The move was prompted by a stronger USD, and later today Powell’s speech could trigger more swings.
The pound slipped 0.1% as UK Prime Minister Theresa May reportedly allowed lawmakers to vote on a series of potential changes in her Brexit plan. More uncertainty is expected ahead of the final MPs vote on the 11th December.
US treasuries edged higher as markets await today’s Fed’s Powell speech to the Economic Club of New York. Fed Vice Chairman Clarida committed yesterday to support “some further gradual adjustment” in rates. Fed watchers took the comment as a sign that the end of the current rate-hiking campaign could be close, but not immediate.
Asian overnight: Markets remain unperturbed by warnings from the US government over impending talks with China, as Asian markets close out the session overwhelmingly in the green. The Australian ASX 200 remained as the only major market in the red, with a rebound in crude prices not too little to help drive the index into the green. Chinese markets were the outperformer, with the G20 summit at least providing the possibility of a breakthrough. Should we see another failed attempt to find a resolution, we would simply be back at square one.
UK, US and Europe: UK Prime Minister Theresa May dropped efforts to avoid lawmakers re-writing her Brexit deal. A series of potential changes in the plans could take place, among which a call for another referendum. Moreover, the Treasury will publish today an analysis on the long-term economic impact of Brexit on the UK which could prompt more resistance from the Parliament. As already almost 100 Conservative members of Parliament have publicly committed to not supporting the Brexit deal, May’s Brexit journey looks far from nearly completed. Meanwhile, the pound edged higher amidst hopes of a Brexit deal being ratified.
From the US, expectations are growing ahead of Saturday’s dinner in Buenos Aires between Donald Trump and China’s Xi Jinping. Larry Kudlow, the US president’s top economic adviser, has clarified that Trump is ready to impose more tariffs if talks with China do not progress. As we are approaching a pre-election year, pressure is building on president Trump to yield results from his ongoing trade disputes. The market maintains a positive outlook on the meeting as the dollar held gains and tech shares gathered momentum.
Looking ahead, the preliminary US GDP reading for Q3 provides the first revision to the 3.5% figure released last month. With US-China trade talks due to take place at the end of the week, the US goods trade balance due out today certainly comes at an opportune moment, helping shape trade walks with China. Later on, we have US crude inventories and UK bank stress tests to contend with.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
12pm – German GfK consumer confidence (December): forecast to fall to 10.5 from 10.6. Markets to watch: EUR crosses
1pm – US GDP (Q3, 2nd estimate): growth to drop to 3.5% QoQ from 4.2%. Markets to watch: US indices, USD crosses
3pm – US new home sales (October): forecast to rise 2.2% MoM from a 5.5% drop a month earlier. Markets to watch: US indices, USD crosses
3.30pm – US EIA crude inventories (w/e 23 November): stockpiles to rise by 2.5 million barrels. Markets to watch: Brent, WTI
Corporate News, Upgrades and Downgrades
On the Beach said that full-year pre-tax profit rose 24% to £26.1 million, while revenue rose 25% to £104.1 million.
RPC saw first-half pre-tax profit fell 5% to £154.4 million, while revenue was up 7% to £1.89 billion.
Senior expects ‘good progress’ for the full year, after trading in the first ten months of the year met expectations.
Frey upgraded to buy at Kepler Cheuvreux
PSI upgraded to buy at DZ Bank
S Immo upgraded to buy at SRC Research
AstraZeneca downgraded to hold at New Street Research
Marks & Spencer cut to sector perform at RBC
Nostrum Oil & Gas cut to hold at Panmure Gordo
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
A loaded menu: If this week in financial markets is a buffet of information, then yesterday’s session tasted like the entrée. The themes that were predicted to define this week’s trade all showed-up in one form or another, hinting at bigger things to come. US President Trump added heat to the trade war, then spiced up the Brexit debate; a speech from US Federal Reserve Vice President Richard Clarida had traders questioning how many Fed hike’s markets have baked-in; another day of plunging oil prices stirred up fears regarding corporate credit; and overcooked tech-stocks fluctuated, with the key ingredient there the wobbles in Apple Inc.’s share price. The mixture of stories blended through the market is just a sample of what could be in store for the rest of the week, with traders now at the edge of their seat and hungry for more answers.
Trump and the Trade War: Okay – enough of the cheesy food metaphors (sorry, last one). What we were delivered in the last 24 hours is very important and establishes the firm possibility of spikes in volatility over the next seven days. US President Trump, for one, hogged the airwaves – and he doesn’t seem like a happy camper. After the close of Monday’s North American session, President Trump fired the first broadside at his Chinese counterparts ahead of this week’s meeting at the G20, stating that he expected that his administration would go ahead with increased tariffs on Chinese goods come January 1 this year. Not only that, but he suggested that iPhones and other high-volume consumer goods could be included in the next round of tariffs, proclaiming consumers would be comfortable paying an extra 10 per cent on such items.
Nervous trade: Apple Inc. naturally struggled in overnight trade because of the comments, leading to a choppy session for the NASDAQ and Wall Street as a whole. It must be said that in late trade, US stocks are turning higher, and trading in a much tighter range than what we’ve endured over the past 2 months. Nevertheless, President Trump’s rhetoric is making traders edgy, as they try to take in their stride his inevitable provocations leading into this weekend’s trade negotiations. It has ignited concerns about global growth, resulting in an overall fall in commodity prices last night. Safety has been sought in US Dollar denominated assets consequently, keeping the yield on the benchmark 10 Year Treasury note to 3.05 per cent; and pushing the US Dollar higher, with the US Dollar Index challenging resistance at 97.50 – a dynamic in which has cut gold prices down to $US1213 per ounce.
Protectionism: A big part of why the greenback and US assets performed so well is President Trump really fired-up the MAGA rhetoric yesterday. It must have been news that General Motors was planning to close 5 North American factories that really got him going and excited his protectionist impulses. Not only did he take to Twitter to voice his frustrations at GM and its CEO for its decision – threatening to introduce new auto-tariffs in response – he also went out of his way to lash-out at Theresa May and her Brexit deal, asserting that it may compromise futures trade deals between the US and UK. The onslaught of commentary from the President drove the Pound back within the 1.27 handle and the EUR below the 1.13 mark; and dragged European equity indices lower across the board.
Fed-Watch: Away from the antics of US President Trump now, and the less-headline grabbing (yet arguably more significant) story for the day was a highly anticipated speech from US Federal Reserve Vice President Richard Clarida. If you recall, it was another speech delivered by Mr. Clarida a few weeks ago that kicked-off the “the Fed is becoming dovish” narrative, prompting traders to unwind their bets on future Fed hikes. Last night’s speech was far less impactful than that one, with US rates markets barely budging. But the tone – it’s all about the tone – of the speech has been judged as more “neutral” than the last, emphasizing the “data dependence” explanation for the Fed’s outlook on rates and the US economy, setting the groundwork for a speech Fed Chair Jerome Powell in the next 24 hours, and the Fed’ monetary policy minutes on Friday.
Oil, credit and equities: The final major theme dictating overnight trade is oil prices, and its implications for equities and credit markets. Leading into the end of the US session, in line with activity in US stocks, oil has pared its losses to presently be sitting more-or-less flat for the day. A bearish bias remains for the black stuff, as traders seek to anticipate what the G20 meeting plus a meeting between OPEC a week later will mean for global production. The prospect of lower oil prices, while good for consumers, has traders nervous: credit markets have built in wider spreads in corporate bonds on the risk that energy giants will prove less credit worthy if their income is diminished by a lower price of oil. The knock-on effect is weighing on sentiment in US (and global) equities, with fears that high funding costs will put pressure on highly leveraged US corporates and those company’s share prices.
Asia and the ASX: With all of this as the back drop for today’s Asian session, futures markets are indicating a mixed start for the region’s shares, following a similarly mixed day of trade yesterday. SPI futures currently have the ASX200 opening flat this morning, off the back of solid Tuesday session, that saw the Australian shares add 1 per cent on higher than average volume. The heavy lifting was performed by the bank stocks, which compensated for the day prior’s weakness in the materials sector, to add 27 points to the index. The gains ran deep however, with every sector in the green, and breadth at 74 per cent. The index’s close at 5728 positions the market just below resistance at 5745: a push beyond that level today, if the S&P500 is any sort of lead, may need to come defensives and non-cyclicals, which lead the gains in US indices last night.

Trump reported that Brexit could potentially threaten a UK-US trade deal, leaving Britain unable to negotiate a free-trade agreement with the US
OPEC to meet in Vienna next week to discuss levels of oil production. It is expected to be cut down by 1million to 1.5million barrels due to worries of the US-China trade war
Trump announced a potential introduction of applying a 10% tariff on iPhones imported from China, which could increase to 25% on January 1st
Ukraine to bring martial law for 30 days, following the attack from Russian military, wounding several sailors
Asian markets trade higher with Nikkei 225 inclining by 0.8%, Shanghai composite rising 0.42%, Shenzhen up 0.62% and ASX 200 by 0.91%
Brent crude oil futures rises by 2.9% to $60.48 a barrel
Saudi Aramco to invest $100billion globally in chemicals within the next 10 years, as well as a prediction in the next decade of an increase in production to 23billion standard cubic feet a day from 14billion, attracting $150billion worth of investments
Bitcoin declined by 81% from its last year’s peak in addition to its trading volumes, with its 24-hour volume decreasing by 61% on Monday to $19billion
Goldman Sachs believes commodities could rise by 17% in the following months as the G-20 summit could be a ‘potential launchpad for raw materials’
Asian overnight: A mixed affair overnight saw losses in Chinese and Hong Kong markets, as Donald Trump raised the stakes for the upcoming talks at the G20, stating that their tariffs would be ramped up in the case of no-deal. However, Japanese and Australian markets fared much better, with a rebound in oil prices helping the ASX 200 in particular. On the data-front, Japanese BoJ core CPI rose marginally to 0.6% against expectations.
UK, US and Europe:
Theresa May continued to face criticism from the opposition and numerous conservative members of Parliament, however, May defends her proposals in relation to the Brexit withdrawal agreement as she believes “there is not a better deal available”, even though she confesses she is not “entirely happy” with the backstop plan to avoid a hard border. It has been confirmed that the final vote will take place around the 11th December.
The US president reported that the Brexit withdrawal agreement is a “great deal for the EU”, however suggested that this could potentially threaten a UK-US trade deal, announcing that “right now, if you look at the deal, the UK may not be able to trade with us. And that wouldn’t be a good thing”. Responding to this, a Downing Street spokesman reported that the Brexit agreement would allow the UK to sign bilateral deals with countries including the US.
Looking ahead, UK markets will likely have a volatile start to the day, given the number of companies releasing their earnings this morning. In the US, keep an eye out for the latest consumer confidence as the one major data release of the day. Besides that, markets are likely to focus on current themes, with Brexit, US-China relations, and the Italian budget remaining prominent.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
3pm – US consumer confidence (November): expected to fall to 136.2 from 137.9. Markets to watch: USD crosses
Corporate News, Upgrades and Downgrades
Thomas Cook said that underlying earnings for the year to September will fall to £250 million, down from £308 million a year earlier. In addition, it will suspend its full-year dividend. Net debt rose to £389 million, due to delayed bookings and non-cash items.
Pennon reported a 2.9% rise in pre-tax profit for the first half, to £133.6 million, while revenue was up 3.1% at £746.7 million.
Greggs upgraded expectations for the full-year, saying that a good October and November meant that full-year pre-tax profit would be at least £86 million, from a previous expectation of £72 million, in-line with last year.
Shaftesbury reported a 14% rise in investment earnings to £51.7 million, while the total dividend rose 5% to 16.8p per share.
General Motors to cut over 14,000 jobs and close 8 plants, reducing productivity levels in factories in the US and Canada
Tesla sales in China tumble by 70% in comparison to the previous year, selling only 211 cars in October
Line shares increased as much as 17% following the news of joining with Tencent.
Altri upgraded to market perform at BBVA
Atea upgraded to neutral at SpareBank
Hikma upgraded to buy at Jefferies
Iberdrola upgraded to outperform at RBC
Aurubis downgraded to hold at DZ Bank
NMC Health cut to underperform at Jefferies
Credit Suisse cut to equal-weight at Morgan Stanley
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
US traders return: It’s nice to be back to some normal programming. The big-wigs on Wall Street have returned to their desks and volumes across the market are looking far healthier. After last week’s sell-off and volatility, and well before the meaty part of trade this week, traders appear to have had their appetite for risk whetted. Only slightly, of course: there is an acute awareness that the next seven days will hurl up some major events and some significant uncertainty. However, the VIX is off its highs and below 20 once again, and riskier assets are feeling some love. There were patches of underperformance yesterday, naturally – our ASX200 happened to be one of them, along with Chinese indices – but as it applies to most the major indices, a healthy coat of green is covering the screen to kick-off the first 24 hours of the week’s trade.
Asian session: The tide turned during the Asian session, with no true impetus behind it. If anything, the fundamentals we received during Asia’s trade made for ugly viewing: Japan’s Flash Manufacturing PMI data was released, and that disappointed markets, adding to fears of slower global growth; while New Zealand Retail Sales figures put-in an abominable showing, printing flat quarter-on-quarter versus expectations of a 1.0 per cent expansion. They were non-stories, though, in the ultimate context of yesterday’s trade, as futures markets pushed-higher on pricing of a solid start to the week for equity markets. Some macro-excuses to buy stocks did arrive in the European session, when reports that Italian policy makers were reviewing their maligned budget filtered through markets, compounding the slight lift in confidence engendered by the weekend’s rubber-stamped Brexit deal.
European trade: Across European indices, the DAX jumped 1.45 per cent, the FTSE climbed 1.20 per cent, and the Euro Stoxx 50 1.13 per cent. Bond yields edged higher across the Continent and throughout North American, while the positive developments in the Italian fiscal crisis narrowed the spread between German Bunds and Italian BTPs. The fall in US Treasuries saw the yield on the 10 Year note easing to 3.06 per cent and the yield on the 2 Year note to 2.83 per cent, narrowing the spread between those two assets to approximately 23 basis points. The higher yields supported the US Dollar, which returned to the 97-level according to the US Dollar Index. The Japanese Yen was the biggest loser of the major currencies, dropping over half-a-per cent to trade within the middle of the 113-handle; however, gold, the Euro and Pound traded relatively stable.
Wall Street: At time of writing, US stock indices are on the cusp of registering quite a solid day. Volumes are higher on average too, reflecting that there is some substance behind what is being dubbed as a "relief rally". It's more a bounce to be fair – the kind we've seen before since the global stock market correction took hold. Nevertheless, for the bullish and opportunistic, it's justifiably proven a respectable 24 hours. US tech stocks have lead the market higher, supported by a bounce in oil prices, which have helped narrow corporate credit spreads and spur greater appetite for risk. The troubles for tech-stocks and oil haven't passed yet -- the big picture hasn't changed -- though (just maybe) there are signs that the bearishness driving the downside in those assets is abating.
ASX200 yesterday: The action in financial markets in overnight trade has SPI futures indicating a 44-point jump at the open – a dynamic if realised, will regain yesterday's session's losses from the opening bell. Activity was quite high on the Australian share market yesterday, with volumes approximately 5 per cent above the 100-day moving average. The liveliness in markets was predominantly driven by a dumping of the mining stocks, which were pummelled by the considerable sell-off in iron ore, following the plunge in steel rebar futures over the weekend in response to greater concerns about Chinese economic growth. Overall, the materials sector was responsible for a noteworthy 25 points of the ASX200's losses during the day’s trade, with the likes of BHP and Rio Tinto sliding just over 3.5 per cent.
Aussie Dollar: The circumstances also led to a slight pull back in the AUD/USD, which generally has lost some of its lustre. Upside momentum has slowed, as the pop higher brought-about by a squeeze on traders’ short positions looks to have stalled, if not subsided. Macro-fundamentals have eased the pressure on the AUD/USD in November, as traders unwind their bets of an aggressive Fed in 2019: the yield-spread between the interest rate sensitive US 2 Year Treasury note and the 2 Year Australian Commonwealth Bond narrowed to as little as 75 basis points. That has expanded once more, but with heightened volatility in the markets and sentiment interfering with fundamentals, a crude assessment of the Bollinger Band suggests that the myriad of macroeconomic risks in the next month could see the AUD/USD move within a broad range between 0.7020 and 0.7450 into the medium term – with the local unit currently smack-bang in the middle of that range based on the weekly chart.
ASX200: Looking ahead: Now that financial markets have returned to a normal state, getting a gauge on sentiment becomes considerably easier. Positioning will begin taking place across asset classes for the series of US Fed related events in the next 4 days, combined with the weekend's major G20 meeting. The implications for the breadth of global markets are seemingly endless, but as it applies to the ASX200, the outcome of both concerns is profound. IG client sentiment is giving generally bearish signals presently – something that will only become further entrenched if the Fed come-out more hawkish this week and US-China trade negotiations deteriorate. Support at 5600 (give or take) will be where the bulls will be hoping for a floor in the event of a worst-case scenario; while a bullish break-out can't be confirmed until at least 5930 is breached.

May will start her two-week campaign to sell her historic Brexit deal to MPs as EU leaders have agreed on the UK's Brexit deal during the summit held in Brussels over the weekend, outlining it is "the best and only deal possible".
European Commission President Jean-Claude Juncker explained that anyone who thinks that the EU will offer improved terms if MPs reject the deal will be left "disappointed" - MPs are expected to vote on the 12th of December.
Asian equity markets had a mixed session on Monday afternoon as the energy sector declined due plunging oil prices. The Hang Seng index rose by 1.69%, followed by the Shanghai composite rising 0.29% and the ASX 200 which fell 0.86% - with the energy sub index down by 2.71%.
Oil prices managed to reverse some losses after a near 8% drop in the previous "Black Friday" session, WTI crude futures were up 1% followed by Brent futures rising 1.6% to $59.71, although still below $60 per barrel and near Friday's low of $58.41.
The deadly California wildfire, which started on the 8th of November, is now said to be 100% contained after destroying almost 14,000 homes and killing 85 people, with hundreds still missing.
Tension between Russia and Ukraine escalates as Russia has opened fire and seized three Ukrainian naval vessels, injuring several crew members on-board. The countries are blaming each other for the incident, it's expected that Ukrainian MPs will vote on whether to declare martial law today.
Bitcoin's sharp decline got worse over the weekend as the cryptocurrency entered into its largest sell-off since 2014 which is "really testing the faith of a few key players", the price dropped as low as $3,475 on Sunday.
Asian overnight: A mixed Asian session saw a strong surge for Japanese and Hong Kong markets counteracted by weakness in China and Australia. That comes despite the careful optimism surrounding the upcoming trade talks between the US and China at the G20 summit. The weekend saw the EU27 ratify the Brexit proposal, in a move that should have pushed the pound higher. However, this barely happened, after the likeliness of parliamentary rejection was raised by Emmanuel Macron who stated that he would ensure the UK is forced into the backstop indefinitely unless his fishing related demands are met. Data-wise, we saw the New Zealand retail sales figures fall short of market expectations, with the core figure falling to the lowest level since 2016. We also saw Japanese manufacturing PMI fall to 51.8 from 52.9.
UK, US and Europe: Theresa May will face immense pressure as she embarks on her Brexit battle to get her deal agreed in Westminster after the 27 leaders of the European Union approved the deal in just 38 minutes at the summit in Brussels. A recent report conducted by the National Institute o Economic and Social Research will not help her cause as it claimed that Mrs May's Brexit agreement will leave the UK £100 billion a year worse of by 2030. The potential Brexit deal has lead to many MPs venting their frustration publicly, including some of her fellow Tory "remainers". One of these is Sarah Wollaston, a conservative MP, as she explained that "I just don't think it's remotely possible that this deal would pass the commons", although she believes it's unlikely the UK will leave without a deal as MPs are "very opposed" to leaving without any deal at all.
Having said this, EU leaders have warned British MPs about the risks of voting the Brexit deal down in a bid to aid the Prime Minister in getting the agreement through parliament. Jean-Claude Juncker reflected on an overall "sad day" but told reporters "I'm inviting those who have to ratify this deal in the House of Commons to take this into consideration: this is the best deal possible for Britain, this is the best deal possible for Europe, this is the only deal possible". Interesting to see the market reaction in the main session to the news of EU leaders approving the Brexit deal over the weekend.
Looking ahead, much of the focus remains on Europe, with the German Ifo business climate survey providing the one major economic release of the day. Meanwhile, appearances from Draghi and Carney later in the day should ensure the EUR and GBP volatility is maintained in the wake of the weekend’s Brexit vote.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
9am – German IFO (November): business climate index to rise to 103.2 from 102.8. Markets to watch: EUR crosses 1.30pm – Chicago Fed nat’l activity index (October): expected to rise to 0.4 from 0.1. Markets to watch: US indices, USD crosses
Corporate News, Upgrades and Downgrades
Rio Tinto has sold its controlling stake in a Namibia uranium mine to a Chinese firm, fro up to $106.5 million.
AstraZeneca said that the US FDA had granted an orphan drug designation for its autoimmune disease treatment.
General Motors has announced plans to close it's Canadian plant which employs 2,200 workers.
The board of Mitsubishi Motors are set to meet today to discuss the removal of Carlos Ghosn from his role as chairman due to his arrest for alleged financial misconduct.
Vecture Group will incur a £40 million loss after it's astma drug trial failed, the chief medical officer said "Although we are disappointed that these results missed statistical significant, I remain confident in our proprietary technology and development capabilities".
Allianz upgraded to overweight at Barclays
Panalpina upgraded to buy at Jefferies
Saipem upgraded to buy at HSBC
Wood upgraded to buy at HSBC
Altice Europe downgraded to outperform at RBC
Pennon downgraded to sector perform at RBC
Severn Trent downgraded to outperform at RBC
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
The themes: Boy oh boy, are we facing a significant week. It promises to be a big one, with so many of the pressing macro-economic issues currently driving market activity set to dominate headlines. Given this is so, and the Thanksgiving hangover kept trade light on Friday, casting an eye ahead and speculating on what the next seven days may deliver the most valuable insights. The themes won’t be foreign to traders: we’ve got the US Federal Reserve and global interest rates, slower global growth, the US-China trade war, Brexit, and the crash in oil prices. The way each unfolds sets the foundations for markets not only in the crucial month of December, but also the start of 2019. Being so, it’s more than likely that whatever the developments in these stories, traders will be perusing the devils in the detail to infer as much they can from them, providing ample fuel for heightened and ongoing volatility.
The Fed and US rates: The US Federal Reserve remains the major and most powerful driver of financial market activity. The impact of the end of the easy money era is manifesting in markets the world over. The question has long been asked – for the most part of the last decade, in fact – what the effects will be of normalizing Fed policy. We are apparently beginning to get that answer. This Friday welcomes the release of FOMC Monetary Policy Minutes, and the core concern for traders is whether the Fed is showing further signs of burgeoning dovishness. Traders have interpreted the central bank’s recent discourse as reflecting a reduced willingness to keep to an aggressive rate hiking path, amid concerns that growth and inflation (the later a data-point that market participants will also receive this week) has possibly topped-out. It’s resulted in markets pricing-in a 73 per cent chance of a rate hike from the Fed in December; and pricing out all but one hike from the Fed in 2019.
Global growth: The primary reason for this changing dynamic is there is a prevailing fear that the world is headed for slower economic growth. It’s far from assured, and with a remarkably strong labour markets coupled with still reasonable business conditions, the US remains in good stead to grow at a respectable clip. But the problem remains the world ex-United States, as forecasts increasingly point to a significant (enough) slow-down is Europe and China. This view betrayed itself on Friday in global bond markets: the yield on 10 Year US Treasuries fall precariously near the 3.00 per cent level, in tandem with yields across Asian and Europe – meaning the US Dollar held its bid. Perhaps of greatest concern is that this lift in bond prices hasn’t seemed to shift sentiment within equity markets, as a continued blow-out in the spreads on investment grade and high-yield credit aggravates concerns about over leveraged US corporates.
US-China Trade War: Fears about slower economic growth, the global debt burden and tighter financial conditions will be hard to unwind. The once high-flying US stock market has seen the Dow Jones, S&P500 and NASDAQ shed 5.8 per cent, 8.4 per cent, and 12.67 per cent, respectively, over the past 3 months. The losses will prove difficult to staunch, and momentum still appears skewed to the downside. If there is any hope of sentiment shifting-around this week, one imagines it’ll have to come because of improved relations between the US and China – and a possible beginning of trade negotiations. Overall, the signs are looking positive. US President Trump is mercurial, and the Chinese are stubborn, so the situation is liable to rapidly change. However, so far, the dialogue has been relatively amiable, inspiring hope that the beginning of the end of this trade war could well commence at the weekend’s G20 summit.
Brexit: The other geopolitical risk hanging over markets is of course that of Brexit. The UK’s and the European Union’s divorce deal will face another flashpoint this week, after almost being derailed over the weekend by Spanish official’s concerns around the Brexit-implications of Gibraltar. The deal has been rubber stamped by European bureaucrats at the weekend’s EU Economic summit, however the view remains that it won’t get through the House of Commons. A vote on the deal won’t be immediately forthcoming, and the official exit date for the UK isn’t until March 29 next year. But markets require far less-meaningful milestones to cast their judgement and get a feel of the likely fate of Brexit. The key-current Brexit agitators, like Boris Johnson and Dominic Raab, not to mention opposition leader Jeremy Corbyn, will surely whip up the rhetoric this week – reminding that this Brexit deal is possibly dead in the water, spelling trouble for European equities and the Pound.
Oil: Commodities are suffering owing to fears about global growth and widespread market-volatility, and this of course is no truer than in oil markets at present. The price of oil tumbled again over the weekend: WTI is trading just above the $US50.00 per barrel level at $50.41, while Brent Crude has spilled through $60.00 to presently trade at $59.32. There is waning optimism amongst oil-bulls that productions cuts can be organized by the world’s largest oil exporters, with the Saudi’s losing control of OPEC, the Russians showing only a tepid determination to intervene in markets, and the US advocating for lower oil prices. It’s a set of circumstances that seems very nearly intractable and will weigh on equities and credit markets – especially one that could very quickly spiral out of control if the massive number of long positions are unwound in the market.
ASX200: SPI Futures in the day ahead are indicating a 37 per point drop following Wall Street ‘s soft trade on Friday. It’s difficult to imagine that the ASX200 will break its strong relationship with activity on Wall Street this week. Trading come the local session on Tuesday will be back to normal, after several days of thin trade: volumes on Friday were around 30 per cent below average. There isn’t a great deal of local data this week, either: Private Capital Expenditure data plus a speech from RBA Governor Philip Lowe is all we’ve got.
The strength of the bounce for the ASX200 will surely be tested this week, particularly if any one of the litany of macro risk factors causes a spike in volatility. Much of the buying that has driven the bounce are in the markets safer and larger-cap stocks, implying that an appetite for risk is low, and the buyers are searching out bargains. The next key level of support to keep an eye on to gauge the underline strength in the ASX200’s mini-rally is around 5745, though it must be stated levels well beyond that need to be attained before a definitive turnaround in this market can be called.

Expected index adjustments
Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 26 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video.
NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange.
Special dividends this week
Index
Bloomberg Code
Effective Date
Summary
Dividend Amount
AS51
TNE AU
29/11/2018
Special Div
2.6429
RTY
FIZZ US
29/11/2018
Special Div
290
RTY
RLI US
29/11/2018
Special Div
100
RTY
FULT US
30/11/2018
Special Div
4
RTY
HVT US
30/11/2018
Special Div
100
RTY
ITIC US
30/11/2018
Special Div
1060
RTY
DHIL US
30/11/2018
Special Div
800
How do dividend adjustments work?
As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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A G20 Meeting of Extreme Consequence
As far as summits for leaders of the world’s largest economies go – in other words, an already very important affair – the gathering in Argentina this coming Friday and Saturday is crucial. There are a host of global conflicts that will inevitably be addressed at this gathering, but certain aspects will preoccupy the market’s immediate focus. It will be important to recognize what will carry the weight of speculative interest. On the one hand, there are discussion points of great consequence socially and culturally, but those issues will not show their economic consequences much latter and therefore will be largely ignored but for niche corners of the market. An example of this type of discussion point is climate change which has taken on greater importance with countries pleading with the US following its withdrawal from the Paris Accord and the strong of recent, dire scientific reports. In contrast, trade wars, is an ongoing threat to global economic and financial health inevitably drawing an inordinate amount of attention from market participants.
Of course, the elephant in the room will be US President Donald Trump who has pushed ahead with the most consequential conflicts on international trade. There will inevitably be numerous pleas made to the leader of the free world to rethink his aggressive approach towards peers. That said, he likely has little interest to hear out there concerns. The mid-term election results will likely redouble his commitment to his current course. To be fair, nearly any outcome would have rendered such a result. Had the GOP swept the polls, it would have been taken as America showing its support. Yet with the outcome that was realized, there is a greater interest in pursuing those courses of action for which he can affect change without the of a divided Congress. And trade is just one such outlet. Alternatively, finding a course out of a discounted crisis could be registered as a political win – though what it would earn for the US markets is another matter. Avoiding a crisis (some would argue one self-manufactured) is not the same as inspiring genuine enthusiasm and speculative run.
In particular, this summit should be watched for official and sideline commentary from the US-China discussions. Leaders of the two countries (Trump and Xi) are scheduled to discuss trade at the summit providing an ideal high-level opportunity to afford each an opportunity to claim a political victory. If they change decide to reverse course, it could offer considerable speculative relief and perhaps no small amount of recovery. This could very well be the strategy as Trump has voiced increasingly confident views of the relationship these past weeks that have been walked back by his administration – perhaps to build pressure. If we do see these two countries make nice and start the path towards recovery, yet markets do not translate the news into recovery, I would be concerned about what it reflects for sentiment. Alternatively, no encouraging course correction would be a ‘status quo’ outcome and keep our troubled outlook on its wary course. If the politicians involved want, they can render this event an obfuscated non-mover even without an official communique. Yet, subtly seems less and less standard a virtue of late.
Liquidity Restored, Seasonality Conditions and Key Events
The liquidity tide will roll back in over the coming week. As expected, the drain of US speculative interest this past week due to the Thanksgiving holiday played an effective role in sidelining a concerted effort to mount a system-wide advance or retreat in risk trends. However, the period didn’t end without its troubling signals for the future. The S&P 500 closed a thin Friday trade session with one of the least encouraging candles possible – a gap lower, larger ‘upper wick’, no ‘body’ between open and close and anchored to a noteworthy trendline support. The losses leading up to the US holiday reiterate a troubling frequency of painful losses for the benchmark US indices this year. What’s more, it serves to remind us of the fact that many other corners of the financial system – both in terms of region and asset type – have already trekked much lower. A retreat in US equities would be a general convergence towards significantly weaker global if that were the course that we took.
Yet, there is still the natural hold out for seasonal mood disorder – otherwise assumed to be a holiday rally. There is good statistical data to give weight to such expectations but of course there are exceptions to this norm. And, if there were ever a time to worry about a passive climb in speculative positioning, it would be amid a wealth of overlapping and systemic financial risks. From trade wars to the collapse of ineffective monetary policy regimes to growing evidence of excessive leverage (loans, debt, investor exposure), we are dealing with a potentially-toxic environment. As more factions in the global markets recognize the precarious environment for which we are exposed, there is greater threat to fragile stability in key event risk. There is a range of key global events and data due over the coming week.
In the US, the Fed’s favorite inflation reading (the PCE deflator) will work with the FOMC minutes and Fed speak to set expectations for rate hikes in December and the pace in 2019 which have already suffered in recent weeks. In Europe, the Euro-area sentiment surveys and BoE’s financial stability report will anchor the focus on the region’s quickly fading sense of stability. Chinese and Japanese PMIs will give good proxy for recent GDP in Asia while actual quarterly updates are due from Brazil and India. Now is not a good time to embrace the comfortable warmth of complacency.
As the Clock Winds Down for a Brexit Deal, Events Look More Ominous
There have been a number of notable reversals in fortune for UK Prime Minister Theresa May and the course of the Brexit deal over the past month. And, with each successive ‘breakthrough’ the market has hardened its skepticism over the authenticity of a favorable path for the country’s divorce. We will see just how cynical the speculative rank and general public are at the start of this new active trading week. Over the weekend, May attended the EU27’s summit to discuss the Brexit proposal backed by the Prime Minister. European Council President Donald Tusk announced on twitter that the collective supported the bill, but enthusiasm was held in check with both lawmakers and observers alike. Top EU negotiators reportedly met May on common ground the week before, and the effort was ultimately doomed owing to PM’s own cabinet failing to offer up necessary support to move the effort forward. After the shakeup forced by the resignations of multiple cabinet members, there is little to suggest that she will have any easier a time of navigating the straights.
In a few weeks, Parliament will put the deal to a vote; and confidence amongst its members has been shaky at best. Some – even key members to the Prime Minister’s support network – have suggested the current proposal would be not make it through. Should the deal be voted down, the clock will look beyond dangerous to the safe and stable withdrawal for the UK. At that point, May could stick it out and attempt to return with small tweaks latter which may not sway her government or will be too substantial and knock out the EU’s support. That would leave little-to-no time to earn agreement from all parties and scramble to get the passage approval with all governments along with the technical groundwork to set the dissolved relationship up for the March 29th cutoff. Either this course or an explicit refusal to back down on key items can push forward a ‘no deal’ outcome which Parliament has said it will rule against on – though it is not clear what the course will be from that point with so very little time left.
There are also a variety of possible courses that end with May be ousted: from her offering up resignation, being pushed out by backbenchers, Labour mustering enough weight to force an election or the PM calling a general election herself in an attempt to gain support. All of these would burn precious time that they negotiations do not have. And, then there is the outlier chance that Theresa May finally entertains the idea of a second referendum which she has adamantly rejected so many times before. That would stop the clock if it were to end with a vote against Brexit or perhaps be used to strategically reset the clock. Whatever course we take, the clock has dwindled and all developments that are genuine progress register as a step to serious pain.

Dolce and Gobbana tension rises as their goods are no longer available on a few Chinese e-commerce sites, including Taobao and JD. Com.
Spain threatens to vote against the Brexit deal as they request that any decisions in relation to the territory of Gibraltar to only be discussed directly with Madrid. EU negotiators are meeting today to try and resolve this before the summit taking place on Sunday
Asian markets show a decline with the Shanghai composite falling 2.25%, the Shenzhen composite by 3.5% and the Hang Seng index falling 0.62%
Oil prices continued to decline with the global benchmark Brent falling to $62.10 after it hit its lowest since December 2017 at $61.52 a barrel.
Tension between the US and China continue as Wall Street reported that the US government are trying to persuade allies to avoid telecommunications equipment from Huawei technology
Meituan Dianping shares plummet by 11.63% after posting its first earnings report since its $4.2billion IPO which occurred in September. Tencent, its main backer, also saw a decline in their shares by 1.56%
International Petroleum Investment Company files a lawsuit against multinational investment bank Goldman Sachs due to a conspiracy theory of taking millions of dollars from the 1MDB fund
The board of Nissan decides to remove Carlos Ghosn as Chairman in relation to accusations of significant acts of misconduct, including under-reporting compensation amounts and personal use of company assets
Over half of economists believed the South African Reserve Bank would keep its repo rate at 6.5%, however on Thursday, it was agreed to increase this to 6.75%
Asian overnight: A mixed session overnight saw Hong Kong and Chinese markets lower, while Australian and Japanese indices were on the rise. Tensions continue between Italian luxury fashion brand Dolce and Gobbana, causing China to react by removing D&G products from e-commerce sites. This response occurred after screenshots were found showing co-founder Stefano Gabbana using ‘crude terms’ and Instagram messages using offensive language. The brand have said their account was hacked, quoting "we have nothing but respect for China and the people of China".
UK, US and Europe: Fears over a Brexit breakdown do not seem to be holding much weight at the moment as we head into the weekend’s EU summit, with Spanish threats to veto the deal over Gibraltar largely disregarded as a surmountable issue. Yesterday’s bearish European session is likely to have an impact on US sentiment today. With a host of economic readings to watch out for, it is likely to be a volatile session. European flash PMI surveys, Canadian inflation and retail sales, alongside US PMI readings should provide enough to keep things moving. Add to that the speculation over how retail is faring on one of the biggest shopping days in the year, and we have a relatively busy day ahead.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
8.15am – 9am – French, German, eurozone mfg & services PMIs (November, flash): these are expected broadly to improve over the past month, although some weakness in the German figures may hit the euro. Markets to watch: eurozone indices, EUR crosses 1.30pm – Canada CPI (October): inflation to rise 2.7% YoY from 2.2%, and rise to 0.1% from -0.4%. Market to watch: CAD crosses 2.45pm – US mfg & services PMI (November, flash): mfg PMI to rise to 56 from 55.7, while services PMI remains at 54.8. Markets to watch: US indices, USD crosses
Corporate News, Upgrades and Downgrades
Ibstock has sold Glen-Gery, its US brick manufacturing business, for $110 million, and has confirmed that the full-year outlook was unchanged.
James Fisher reported a 14% rise in revenue for the ten months to 31 October, compared to a year earlier.
Centrica, owner of British Gas, to take a hit of £70million in its first quarter of 2019 due to its new cap on energy bills
Shell spending around £300million to update the plant at Bacton, increasing the production of gas by 16%
Hyundai and Kia Motors being investigated in relation to its vehicle recalls which occurred in 2015 and 2017 as it is believed the recalls were not conducted properly
CYBG upgraded to buy at Citi
Hastings upgraded to overweight at Barclays
Ibstock upgraded to buy at Peel Hunt
Renault upgraded to buy at Jefferies
Kingfisher downgraded to neutral at Goldman
Thales downgraded to neutral at Oddo BHF
Avon Rubber cut to sell at Panmure Gordon
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
Time to give thanks: It’s Thanks Giving in the US, so US traders are away from their desks and equity markets in the country are offline. Perhaps it’s something the bulls can be thankful for: the holiday has resulted in very thin volumes across the globe, giving a subsequent ability to take pause from the unfolding market rout. There is so much information awaiting market participants coming into the end of November and start of December, so surely the opportunity to distract oneself for now by gorging on roast turkey and a few beverages of choice is being welcomed by our American cousins. Presumably, little can fix for too long the underlying anxiety caused by the myriad of fundamental concerns plaguing investors. But that’s next week’s problem, for now – better that we take stock while the American punters sift around for reasons to give thanks.
Global equities: To capture a theme from last night’s trade: it was – for all intents and purposes – about Brexit. Before delving into that one, let’s take a check on the price action. European equities were down across the board. The volumes for the continent were, as has been touched on, remarkably thin, except for the FTSE, which was down 1.28 per cent on the unfolding Brexit drama. The DAX clocked in a loss of 0.94 per cent for the day, unable to grasp the lead from the Asian region’s mixed but respectable trading day, which saw the Nikkei up 0.65 per cent and the Hang Seng up 0.18 per cent, but the CSI300 down 0.37 per cent. In our local session, the ASX200 was another index that bucked the trend of low activity, continuing its bounce off support around 5600 to close 0.86 per cent higher on volumes 10 per cent above the 100-day average.
Bonds, currencies and commodities: The US Dollar was weaker, largely due to the bidding higher of the Pound and EUR, with those currencies leaping above 1.28 and 1.14, respectively. The weaker dollar also supported gold, which is trading back at $1227 per ounce. US Treasuries are flat due to the Thanks Giving holiday: the yield on the US 10 Year note is 3.06 per cent. Dulled risk appetite has meant the Yen is modestly stronger, trading just below 113 at time of writing; and the Australian Dollar is off a touch, trading slightly above 0.7250, in tandem with the New Zealand Dollar, which is just holding onto the 0.6800 handle. Oil prices have dipped again, falling about 1.4 per cent, dragging the Canadian Dollar with it; while copper is a little higher for the day.
Brexit developments: Back to the pressing issues at hand, and the lack of data combined with closed US markets has meant Brexit developments have taken centre stage. In what's been judged a positive step-forward by markets, Donald Tusk, President of the European Council, announced overnight that a draft Brexit proposal had been "agreed at a negotiators level and agreed in principle at a political level" amongst European Union leaders. The news is what sent the Pound on a tear -- and the FTSE100 lower consequently -- following yields on UK gilts, which of course rallied courtesy of the optimism engendered by the announcement. The stage is now set for this weekend's EU economic summit, where it's now very much assumed European leaders will rubber-stamp the Brexit proposal.
What are the chances? For all the hope that a Brexit deal can be reached, the stark reality is that UK Prime Minister May faces an uphill battle. In what must have been a gruelling three hours or so in front of the House of Commons, the Prime Minister delivered a speech and then fielded questions from parliamentarians on the Brexit proposal. There is such division and disparity in the British Parliament about what Brexit ought to look like, that the likelihood any proposal could unite the very many different and opposing interests appears slim. A no-deal “hard Brexit” remains the probable outcome, spelling trouble for UK and European markets – especially the Pound. How low the Cable could go in this event is difficult to predict: recent lows around 1.2750 would just be the beginning – perhaps the January 2017 low of 1.1990 could be considered the bottom of the range.
ASX200: Bringing it back home, now: SPI futures are presently indicating the ASX200 will open 29 points lower this morning. It would be awfully surprising if volumes on the Australian share-market bucked the trend today and were anywhere near average. A rudderless market may emerge, whereby trade is choppy, momentum low and price action contained – particularly after yesterday’s relief rally, that added to the bounce by the index off recent lows around 5600. The fortunes of the ASX going forward will inevitably be tied to the themes that emerge from US markets, and as it stands that strongly implies further difficulty for Australian shares. However, the silver lining investors and the bulls may wish to cling onto is the notion that our share market was nowhere near as elevated as that of the US’s, so falls from here may not be as steep.
ASX: the bigger picture: Once more: that 5600-mark is significant. It amounts to the bottom of a range that was established in 2017 and held steady several months, in what might now be safely described as the markets “accumulation phase”. From the end of that phase in October 2017 to now has seen the registering of a new decade long high, then – in recent months – a strong correction of that move. It suggests a medium-term cycle has been completed, and a bearish impulse has now seized control of the market. The strength of that move ought to be watched for, but the broader global economic slow-down and the peak in the US market suggests a follow through 5600 is highly possible moving into 2019. The broader, secular bullish trend provides the trading channel to work within and judge the bigger picture, with the 5375-level representing the bottom of this trend-channel.

After yesterday´s meeting in Brussels, Theresa May said “both sides have given sufficient direction” and she will meet Jean-Claude Juncker again on Saturday “to discuss how we can bring to a conclusion this process and bring it to a conclusion in the interest for all our people”, indicating that a final deal is likely to come very soon.
The 27 remaining countries in the EU will meet with Theresa May on Sunday, where they will vote on the Brexit deal. Spain, the only country that was set to veto the UK´s exit agreement over ongoing territorial disputes regarding Gibraltar, seems to have reached a separate pre-agreement deal with the UK over the territory in question.
US stocks bounced back on Wednesday and hit resistance levels. Even thought the Dow Jones closed slightly lower, it was trading 1% higher at midday, whilst the S&P500 and the Nasdaq closed at a gain of 0.39% and 0.92% respectively.
European stocks were also trading higher on Wednesday as the Stoxx 6oo index rose 0.7%, the CAC 40 was up 0.6%, the DAX and the IBEX 35 both gained 1%, and the FTSE 100 was up by almost 1.5%.
Chinese stocks start the day with uncertainty as the Shanghai Composite was trading 0.5% lower by the end of the morning session, and the Shenzhen dropped 0.3%, as investors remain cautious ahead of the G-20 meeting between Xi Jinping and Donald Trump on Dec 1. The rest of Asia saw a more positive start to the day, as both the Nikkei 25 and the Topix saw gains of 0.6%. The positive movement extended also to Australia, as the ASX 200 saw gains of around 1%.
Gold bounced back on Wednesday as it traded above $1,220 per ounce, inching closer to $1,300, price at which it started off the year.
Oil prices recover on Wednesday but take a negative turn on the Asian afternoon trading session, as crude futures falling 0.4% and Brent slipping 0.3%
The European Commission is looking in to sanctioning Italy over its debt budget indiscipline. They will demand Italy to explain how it will remedy its budget plans in order to abide by EU rules. If Italy fails to do so, the EU could open a “debt-based Excessive Deficit Procedure (EDP)”.
Consumer confidence for the month of November fell to 97.5, down from the previous month´s 98.6. The survey is based upon 500 consumers´ sentiment towards economic and political matters such as personal finance, government policies and unemployment.
US durable goods fell 4.4% last month. The decline is believed to be led by US companies being cautious about spending resources amidst ongoing trade wars with China.
Asian overnight: A largely bullish session overnight saw some reprieve from the wider bearish trend, following on from a US and Europe rebound yesterday. Chinese stocks were the one outlier, with the Shenzhen composite trading in the red. Meanwhile, the dollar was grinding lower, following reports that the Fed could end their tightening cycle as early as next spring.
UK, US and Europe: Brexit hopes are up again as a deal seems to be inching closer after Theresa May's meeting with European Commission head Jean-Claude Juncker ended with "very good progress" and a new meeting for Saturday seems to indicate that a deal is more likely to happen than not. Spain seems to have reached a pre-agreement with the UK which could ensure that the future of Gibraltar would be settled directly with Madrid, leaving it out of the EU exit agreement.
Looking ahead, the US Thanksgiving holiday, coupled with a general lack of economic releases throughout Europe and Canada means we could have a relatively quiet session. Any fundamental drivers will have to be already in play or coming from left field. Thus stay aware of any potential shift in the state of play for Brexit, with talk of the Germans pulling out of Sunday's EU summit already worrying markets. It seems that for all the UK misgivings over the proposed deal, it is not a guaranteed that it would pass through the EU either.
Gold has reacted in an atypical way in the last few months. Usually a safe heaven when bear markets occur, gold has lost about $100 per ounce since the beginning of the year, despite trade sell offs and a slowing economy sending equities into bearish territory. This could change going forward, as tightening monetary policies and slowing economic growth could weaken the dollar, the main factor working against gold, leading to an increase in the value of gold as a safe heaven. Join the chat about the future of gold today at 1pm UK time as we sit down with professional investor Simon Popple and Ross Normal, CEO of Sharps Pixley, where you will be able to ask questions on a live Q&A. You can leave your questions on the comments sections of the following link:
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
3pm – eurozone consumer confidence (November, flash): index to rise to -2.4 from -2.7. Market to watch: EUR crosses
Corporate News, Upgrades and Downgrades
GVC has acquired Australian firm Neds International for A$95 million.
Centrica maintained its full-year outlook, despite a weaker performance from its exploration and nuclear divisions.
Mothercare said that like-for-like sales fell 11% during the first half, while adjusted pre-tax losses rocketed to £6.2 million from £2.6 million.
Aeroports de Paris raised to sector perform at RBC
Centamin upgraded to outperform at RBC
Just Eat upgraded to neutral at JPMorgan
Fortum downgraded to hold at HSBC
Halma cut to equal-weight at Morgan Stanley
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
Overnight bounce: A bounce in equities has finally arrived, unwinding some of the week’s heavy losses. As it currently stands, the NASDAQ – ground zero for much of the recent market correction – is leading the pack, up 1-and-a-half per cent for the day, followed by the S&P, which is up 0.8 per cent, and the Dow Jones, which is up 0.65 per cent. Volumes are down generally speaking, so the recovery today lacks bite – though the Thanksgiving holiday in the US may somewhat be behind this, meaning an apparent lack of conviction in this relief rally could be explained away. Meaningful price action in other areas of the market that gives a solid read on the current psychology of traders is absent: US Treasuries have been comparatively inactive, with yields remaining contained across the curve, and the US Dollar is slightly lower, without demonstrating remarkable activity itself.
Risk assets: Certain assets have benefitted from the lull in panic-selling. To preface: the VIX has receded to a reading of 20, from highs around 23 yesterday. In currency land, the Australian Dollar and New Zealand Dollar, as risk proxies, have ticked higher to 0.7265 and 0.6795. Obviously, the reduced anxiety amongst traders has meant the converse is true for haven currencies like the Japanese Yen, which is trading above 113 today. The Euro and Pound remain in the 1.13 and 1.27 handle respectively, most unmoved by the day’s sentiment. While credit spreads, which have blown out recently as risk-sentiment evaporated, have finally come-in. To counter the notion of complete risk-off: Gold has caught a bid, to trade at $US1227, or thereabouts, with its rally attributable largely to a modestly weaker greenback.
Global indices: But overall, risk appetite has been ever so slightly whetted, even if it is only temporary. European equity indices were well into the green, aided by a skerrick of positivity generated by good news relating to the Italian budget crisis. The DAX was up 1.61 per cent and the FTSE added1.47 per cent, shaking-off the mixed lead from Asia, which saw the Hang Seng up 0.51 per cent and the CSI300 up 0.25 per cent, but the Nikkei down 0.35 per cent and the ASX200 down 0.51 per cent. A bounce in commodity prices has fed into and supported the solid sentiment in equities, especially as it relates to oil, which rallied off its lows to trade just below $US54 in WTI terms and hold within the mid-$US63 handle in Brent Crude terms.
Slow news day: If this all sounds dry, it’s because that in the context of the volatility experienced in the past week – if not almost 2-months – it very much is. Little has catalysed the overnight bounce. The major themes are still hovering about, and the questions implied by them have barely been answered. The big data release overnight – in fact, it’s probably the biggest for the week – was US Core Durable Goods numbers, and they disappointed. That release, very marginally, added to the chorus of pundits suggesting that the US Federal Reserve’s hiking path may be a little flatter than recently thought. As far as what can be inferred from the data, the US economy is cooling off, implying the “data dependent” Fed will lack the reason to aggressively hike interest rates.
Fed-watch: A lot of these matters relating to the Fed will be clarified when a slew of board members speak next week. The markets attitude though is simpler to read: Fed Funds futures have reduced their bets on the number of rate hikes from that central bank to 2 and a bit from here. December’s telegraphed hike is being priced again at a 75 per cent chance, but after, if traders are a good barometer, rates in 2019 are looking very flat. A more dovish Fed, in the absence of developments in other issues like the Trade War or Brexit, is what is aiding the staunching of risk-off sentiment. It opens the risk now that markets could be all too wrong, and a spike in volatility will arrive if traders were to once again adjust expectations.
A softer outlook: But with the volatility we’ve seen in markets, corporate earnings petering out, and economic growth cooling, the assumption of a more reserved Fed isn’t outlandish. It perhaps reflects the broader risks in the markets and economy too: the Trade War is ongoing, Brexit is falling apart, China is slowing, oil is tumbling, and Italy’s fiscal situation could blow up any day. Given such a landscape, an inevitable pull back by the Fed, timed with lower activity in financial markets, is very understandable – the game of chicken being played by markets and the Fed may have been won by the former. It could all turn on a dime very quickly of course, but as it stands now, the current environment is leading market participants to the conclusion that a period of soft growth, lower earnings growth and a more neutral Fed is upon us.
ASX200: So: as it all related to the Australian share market in the here and now: our bounce today, according to SPI futures, will begin with an approximately 25 point jump at the open. Yesterday’s performance was naturally poor, but some solace can be taken in the fact the market bounced off the 5600-support level. The edging higher throughout the day’s trade was helped by a solid run from CSL, which rallied after Morningstar upgraded that company’s stock to “buy”. The banks also experienced some buying; however, breadth was very low, revealing the lack of conviction in yesterday’s modest upward swing. Today ought to see a broad pick-up, in sympathy with Wall Street’s trade: meaningful technical levels within reach on the daily chart are hard to find, but maybe the barometer is how closely a track towards the 5700 can be established.

FAANG stocks have now shed more than $1 trillion in market value since recent highs, whilst Target leads the fall in retail as its shares dropped 10.5% yesterday after posting worse than expected earnings figures.
The Nasdaq ended the day down 1.7%, whilst the S&P was down 1.8%. The Dow Jones dropped 550 points to close on Tuesday, erasing this year’s gains as it moved into negative territory.
Asian stocks slipped on Wednesday as intensifying fears on global economic growth and trade tensions grip the markets. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.45%.
The ASX lost 0.5%, South Korea's KOSPI fell 0.4% and Japan's Nikkei retreated 0.35%.
Oil has bounced back around $1 a barrel to regain some of yesterday’s 6% plunge, backed by a report of an unexpected decline in US crude inventories. US crude currently trading at $54.31, Brent crude at $63.54.
Gold is steady at around $1223 an ounce.
Bitcoin fell as much as 16% yesterday, to its lowest level since September 2017. Pressure builds on regulators to increase oversight on cryptocurrencies.
Asian overnight: Another bearish session in Asia has seen declines throughout Japan, and Australia, with Chinese and Hong Kong markets ending up flat on the day. However, those losses could have been much worse, with much of the indices declining heavily in early trade, only to erase much of those losses throughout the latter part of the session. Meanwhile, crude prices took another dive overnight, after Donald Trump came out in support of Saudi Arabia in a written statement. It is clear he values the economic benefit of their relationship over the killing of Jamal Khashoggi, and thus the Saudi leadership could be more willing to listen to Trump over his desire to drag oil prices lower.
UK, US and Europe: The sharp sell-off of US technology stocks widened into a global market retreat on Tuesday, underpinned by fears surrounding continued trade tensions, slowing economic growth and weak corporate earnings in the US. Investors worry over sales of Apple’s flagship product, the iPhone, will slow down in light of recent reports that demand for the tech giant’s products in China has declined. This comes in addition as Goldman Sachs slashed its price target on Apple on Tuesday. Short term, unexpected weakness in the technology sector could have a significant impact on the global economy, adding to an already volatile macro environment.
In Europe, we are once again on the lookout for the magic 48th letter to spark a vote of no confidence against Theresa May, while the PM herself goes to Brussels to speak with Jean-Claude Juncker as both sides attempt to finalise a Brexit deal in time for Sunday’s summit of European leaders. Stumbling blocks still remain in the withdrawal agreement, over UK’s access to the EU single market and the issue of maintaining a soft border in Ireland. Looking ahead, public sector net borrowing from the UK forms the other notable event of the European session. In the afternoon, watch out for core durable goods, unemployment claims, and crude inventories from the US.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
1.30pm – US durable goods orders (October): orders to fall 1.8% MoM, and excluding transport to rise 0.2% MoM. Markets to watch: US indices, USD crosses
3pm – Univ of Michigan confidence survey (November): index to fall to 98.3 from 98.6. Markets to watch: US indices, USD crosses
3.30pm – US EIA crude inventories (w/e 16 November): stockpiles to rise by 1.7 million barrels. Markets to watch: Brent, WTI
Corporate News, Upgrades and Downgrades
Renault appoints COO, Thierry Bollore, as interim CEO while allegations against CEO Carlos Ghosn are investigated.
Engineering firm, Babcock International’s gross profit has fallen 64% to £65.1m in the half year September.
Chinese electronics giant Xiaomi is set to boost its operations in India from 500 to 5000 stores by the end of 2019.
United Utilities said that first-half pre-tax profit rose 7.7% to £212.5 million, while revenue was 4.6% higher at £916.4 million.
Sage reported a 16% rise in full-year pre-tax profit, to £398 million, and revenue rose 7.6% to £1.85 billion.
Kingfisher saw like-for-like sales fall 1.3% in Q3, as weakness in France hit performance. The firm also unveiled a £50 million share buyback programme.
Ahold Delhaize raised to buy at Kepler Cheuvreux
British Land upgraded to buy at HSBC
CYBG upgraded to buy at Shore Capital
NegAustrian Post downgraded to sell at Berenberg
Indivior downgraded to sector perform at RBCatives
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
I see red: The global equity rout continued last night, and out to the furthest horizons it was a sea of red. There was very little reprieve no matter where one spun the globe. The Asian session saw China's equity bounce faded again, joining the suffering experienced by the Nikkei, Hang Seng and ASX200; European indices continued their orderly decline, underpinned by a 1.6 per cent drop in the DAX and a 0.76 per cent fall in the FTSE 100; and with less than an hour to trade, Wall Street is clocking losses, led by the Dow Jones, of as much as 2 per cent. The themes aren't wildly different from before, it's just now the story is being read (and bought-into) by a growing mass of traders: global growth is late-cycle, earnings have peaked, and tighter financial conditions means there's no hiding from the risks.
Seeking shelter: Not that market participants aren't searching for places to hide. The problem is, it would seem, that there aren't too many good places to find shelter. The classic safe-havens were given a good crack overnight: US Treasuries were sought out, giving the US Dollar a boost after several days of declines. Yields on US Treasuries were steady; however, this appears more a function of the residual need to maintain pricing of interest rate expectations. Gold was slightly lower because of the stronger USD alone, as was the EUR/USD, which traded into the 113-handle again, and the Pound, which dropped into the 1.27 handle. Even the Japanese Yen dropped slightly as traders scurried around, though it must be said it is far-off its recent lows.
The losers: The flip side to the bidding-up of safe-havens was a smack-down of riskier and/or anti-growth assets, of course. The Australian Dollar is trading into the low 0.7200's and the Kiwi Dollar has slipped below 0.68. The Chinese Yuan edged to 6.94 and broader emerging currencies felt the pinch, again. Commodity prices fell on fears of slowing global growth: copper is off (but it did bounce of the day's lows), and of local relevance, iron ore has plunged by over 2 per cent. Bitcoin too has finally exhibited its status as risky and speculative "asset", spiralling further, to just over $US4,500, at time of writing. Credit spreads continue to widen, especially in investment grade corporate bonds, portending sustained weakness in global equity markets.
Fresh falls for oil: Amid all this selling and search for safety is the conspicuous matter of oil: the black stuff arguably fared worst of all overnight, shedding over 6 per cent. The concerns regarding a massive global over supply continued, as analysts forecast higher inventories and a higher-likelihood that major oil producing countries will prove unable (or unwilling) to collectively cut production. The dynamic has prices of Brent Crude trading at $US62.50, and that of WTI at around $US53.50. Energy stocks were some of the worst performing for the overnight session -- a theme that is expected to persist today – while the oil sensitive Canadian Dollar fell to 1.33 on fears of a deterioration in that countries terms of trade.
Less news, more uncertainty: The volatility experienced in just the first two days of the week -- the VIX spiked to about 22 again overnight -- gives further credence to the notion that light data weeks exaggerate price action. It's like existing in a vacuum, whereby a lack of air resistance makes everything move much more swiftly. In good times, this doesn't feel so bad: it's an excuse to buy, and everyone is mostly happy. However, in this new period of uncertainty, the opposite proves true: less information means fewer opportunities to find certainty and reassurance in data. As such, trading picks up a velocity that exaggerates what might otherwise be tempered movements in markets, spawning vicious cycles where fear feeds and multiplies on more fear.

ASX yesterday: The ASX200 hasn't been spared from this cycle -- and feels an immediate escape will not be forthcoming. The index fell with far greater force than was anticipated during yesterday's, as the broad-based evacuation from equities persisted. The tech-wreck theme has spilled over into our market: momentum chasers are being washed aside, legging high-multiple growth stocks. It was the IT and healthcare sectors that subsequently experienced some of the highest activity and losses, the culmination of which saw the ASX200 come conspicuously close to the oft-mention support level around 5625, or so. Buyers entered the market at that level, allowing the market to staunch its losses seemingly as bargain hunters searched for value in the large caps. However, it was only enough to curb the session's losses to about 0.4 per cent.
ASX today: The lead handed to us by Wall Street has SPI futures indicating quite a considerable drop for the ASX200 at today's open of 58 points, or about 1 per cent. If that were to eventuate, support at around 5625 would quickly give way and expose the key-psychological mark of 5600 to a challenge. Considering what’s been witnessed on markets this week, today may once again be a case of what can lose least. The utilities space and other defensive sectors look to be the early favourites for that title, but it may be one that won't be won without sustaining a few battle scars. Given the overnight moves, the materials sector and energy stocks are presenting as the likely biggest losers, with activity in the banks perhaps the uncertain variable considering a bounce in the Big 4 late yesterday.

Nissan shares fell more than 5% following Chairman Carlos Ghosn being placed under arrest for allegedly violating Japanese financial law
Societe Generale SA settles sanctions violation case with US authorities agreeing to pay $1.34 billion
Talk talk hackers who caused massive data breach affecting 1.6 million customer accounts in 2015 have been jailed for cyber crimes
Oil prices ended on a high yesterday, as EU reported to back French sanctions on Iran
Dow Jones tumbled around 400 points yesterday as technology stocks including Facebook, Amazon, Apple, Netflix and Alphabet declined
Bitcoin fell a further 12% to sit below $5,000, its lowest level in over a year
GBP rallied to $1.30 following Prime Minister's announcement of cabinet backing for Brexit withdrawal plan
Asian overnight: Asian markets followed their US counterparts lower overnight, with Chinese and Hong Kong markets suffering the heaviest losses, losing 2% over the course of the session. The tech sector has been a particular focus for selling pressure, with recent signs over a potential peak in iPhone sales coupled with ongoing tension between the US and China. Bitcoin has continued its decline following the recent drop below a technically important zone of support around $6000.
Nissan stocks took a hit after Chairman Carlos Ghosn was arrested for violating Japanese financial law. The misconduct was reported in a whistleblower report which sited that an investigation showed that Ghosh (and Representative Director Greg Kelly) had been reporting compensation amounts in the Tokyo Stock Exchange securities report that were lower than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn's compensation. The report also suggested this was not Ghosn's only transgression but outlined numerous other significant acts of misconduct such as personal use of company assets. Following these findings it is suggested that Nissan's CEO Hiroto Saikawa, will propose to the Board of director that both Ghosn and Kelly are removed from their positions.
UK, US and Europe: Looking ahead, the main event of note comes from the UK, where the BoE inflation report hearing sees the likes of Mark Carney take the stand for a bout of questioning. Also keep an eye out for the latest US building permits, and housing starts in the afternoon. Earnings-wise, we see a host of US retail names report their latest earnings, with Gap, Target, Footlocker, Best Buy, Lowe's, and Barnes & Noble all in the spotlight. Theresa May continues to argue in defense of her draft withdrawal agreement, stating at the annual Confederation of British Industry yesterday that the deal puts the UK's economic success above all else. However Spain has argued that a consensus must be met in regard to Gibraltar before they will accept the proposed Brexit deal.
Economic calendar - key events and forecast (times in GMT)
1.30pm – US housing starts & building permits (October): permits to rise to 1.27 million and starts to rise to 1.23 million. Markets to watch: US indices, USD crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Compass said that revenue rose 5.5% to £23.24 billion, while operating profit was up 7.1% to £1.74 billion, for the full year.
Spectris said that sales rose 9% in the four months to October, while the full-year performance is expected to be in line with forecasts.
Polypipe reported a 10.2% rise in revenue for the four months to October, while the full-year is forecast to be in line with expectations.
AO World said that full-year results would be weighted towards the second half of the year, due to more challenging UK trading conditions. Total sales for the half year rose 10% to £404 million, but the overall loss was £11.7 million, although this was fractionally less than last year’s £12 million.
EasyJet reported a 41.4% rise in pre-tax profit to £578 million, while revenue rose 16.8% to £5.9 billion.
Nvidia fell a further 11% yesterday after 3rd quarter earnings report
TSB appoints Debbie Crosbie as new chief executive after IT scandal
Urban Outfitters shares increased by over 6% during after-hours trading following company earning reports of 70 cents per share vs estimated 62 cents a share
L Brands shares declined by more than 5% after cutting annual dividends in half to $1.20
Melrose Industries Upgraded to Top Pick at RBC
Rotork Raised to Outperform by RBC
Dermapharm Upgraded to Buy at Oddo BHF
Tryg Downgraded to Sell at Goldman
Gjensidige Downgraded to Neutral at Goldman
Aker BP Downgraded to Neutral at JPMorgan
Spirax Downgraded to Underperform at RBC
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
Risk? No, thanks: Markets have given a resounding “nope” to all varieties of risk overnight. Equities have been slogged on Wall Street, following to a sluggish day in European markets, that saw the FTSE drop 0.2 per cent and the DAX shed 0.85 per cent. Here it looks like this is the convergence punters have been calling: US shares are playing a rapid catch-up with their global counterparts. The losses are piling up. The NASDAQ has been hit the worst in the North American session led by falls in FANG stocks. At time of writing, with about half an hour left in the session, the losses for that index are hovering around 3.00 per cent. That’s not to say the picture is any prettier for the other major US indices: The S&P500 is down just-shy of 2 per cent, and the Dow Jones is much the same.
The havens: Typically, US Treasuries have maintained their bid. The yield on US 10 Year Treasuries has dipped to 3.05 per cent, while the yield on US 2 Year note has fallen further, down 3 points to 2.77 per cent. The markets are scrambling for safety once more as volatility spikes again: the VIX is up to about 21, and that is ample reason for investors to bail-out of equities. The US Dollar is suffering from the drop-in yields, and the Japanese Yen is accepting the safe-haven bid, along with the EUR, which is eyeing off 115 again, supported by (slightly) diminished anxiety around the Italian fiscal crisis. Of course, the Australian Dollar and New Zealand have pulled back, trading at 0.7290 and 0.6840, respectively, although it must be mentioned that commodity prices are holding well enough.
Risk factors: The US Dollar Index is threatening to break short-term trend line support, and this is clearly helping gold prices: in another example of a flight to safety, the price of the yellow metal has climbed to $US1224 per ounce. Calling a top for the greenback is way too rash, and in time if this level of volatility continues, a return to the almighty Dollar would surely manifest. What is happening here, for now, though, is traders are pricing in a more dovish Fed, against what is being presumed as the start of “slower global growth” narrative leading into 2019. The hostilities between the US and China flowing from the weekend’s APEC summit fanned these fears, as has the deteriorating situation around Brexit. But ultimately, they tie back to the belief that the Fed may have overcooked their tightening regime.
It’s the Fed, stupid! Markets have reduced their bets the Fed will hike rates next month to 65 per cent, with only a further two priced in for 2019. This is well-off the number flagged by the Fed in their dot plots, which outlines a further 5 hikes by 2020. The divergence between policy makers forecasts and that of market participants opens-up a cavernous divide, and subsequently boosts the chances of high future volatility. Growth aside, inflation risk still exists. Although there are few major signs (for now) that inflation could spiral out of control, building wage pressures, higher prices from tariffs, and the knock-on effects of Trump’s fiscal assertiveness mean that the risk remains non-negligible. If inflation were to emerge, the Fed would have no choice but to react and hike rates, sending markets scrambling to re-price expectations.
Corporate debt bomb? It's on the chance that this situation will occur that has traders most worried, especially given the hot issue in global markets, presently: the massive US corporate debt burden and the impact tighter financial conditions will have on it. Credit spreads have continued to widen since October’s major share market correction: in fact, on both investment grade debt and junk bonds, the widening has accelerated. The dynamic makes it truly difficult to sustain equity markets gains, as attention becomes fixated on credit risk, and the broader implications of a more expensive debt burden for corporates, as a climb in short term rates translates into higher future refinancing costs. Indeed, it remains early days on this matter, but if it were spiral out of control – in a worst-case scenario – the selling across global equity markets witnessed already would only be the beginning.
Pain for the Asian equities: It must be said this is one of the more catastrophic scenarios, and it is a long way from assured that it will play-out. Nevertheless, as it stands one day into the trading week, equities are having trouble finding friends. The volatility in US markets has futures pricing-in a generally negative day for Asian equity markets, on the back of day that – granting thinner volume everywhere bar Chinese markets – wasn’t too bad. The ASX200 certainly suffered, but the Nikkei was able to add 0.65%, the Hang Seng 0.72 per cent, and the CSI300 1.13 per cent. There was very little news flow for the region yesterday, aside from the overhang of the disappointment from the APEC summit, and perhaps the absence of information supported those gains.
Australia today: It will be another day with a dearth of scheduled economic data, with RBA Minutes this morning the highlight. SPI futures are pointing to a 9-point drop at the open for the ASX200. It was another matter of yesterday’s sell-off simply being an “equity problem”: few sectors were spared from the selling, as investors, trading within thinner volumes, unwound their exposure to equities. The story for the day – and this was represented in trading volumes – was the latest chapter in the Financial Services Royal Commission. The financials sector sucked 15 points from the index on volumes 15% per cent above average. The close for the ASX200 below the psychological-level of 5700 opens-up downside for the ASX200 in the days ahead to key support around 5625, with momentum indicators and the RSI suggesting such declines are more than feasible.

The Asia-Pacific Economic Cooperation (APEC) summit ended on Sunday with leaders failing to agree on a formal joint statement for the first time in its 25-year history, due to disagreements on trade. Chinese President Xi Jinping expected to gain influence in the Pacific as Trump and Putin decided not to attend the summit, however Xi left disappointed as the US and allies made it clear that they are prepared to use economic and military means to counter China's influence.
Asian equities were mixed in afternoon as market volatility continues, the Nikkei rose by 0.5%, Hong Kong's Hang Seng was up 0.6% and the Shangahi Composite also climbed 0.2%. Australia's ASX 200 dipped by 0.6%.
Southeast Asia's second biggest economy, Thailand, slowed in its third quarter as GDP showed no growth from the second due to tourism and exports weakening, a Reuters poll expected growth to be around 0.6%.
Theresa May continues to defend her Brexit withdrawal agreement and indicates that she has "never thought about giving up" despite continued pressure from fellow Tories calling for her to resign. The next round of battling for Mrs May comes today at the CBI conference in London where Jeremy Corbyn is also expected to attend.
Oil prices have increased by approximately 1% due to expectations that Saudi Arabia, the top exporter of oil, will push OPEC to reduce supply by around 1.4 million barrels per day by the end of the year.
One of the leaders of the Houthi movement, Mohammed Ali al-Houthi, announced yesterday that he is ready to initiate a ceasefire in Yemen as long the opposing Saudi-led coalition is prepared to do the same.
Asian overnight: Asian markets were largely higher overnight, with the Australian ASX 200 providing the one outlier to the wider bullish story. Chinese stocks led the way, with the Shenzhen composite rising almost 1% despite ongoing uncertainty in relation to US-China trade ties.
UK, US and Europe: Brexit issues remain key for the UK, with weekend suggestions of an extended transition period from Michel Barnier seeing the pound grind lower overnight. A somewhat quiet start to the week on the economic calendar means that traders will be heavily focused on any advancements in the plot to oust Theresa May amid a potential vote of no confidence. Boris Johnson has been extremely vocal in his dismay over the draft Brexit deal in his column on the Telegraph, calling it an "appalling sell-out" as he lays out his own plans for the UK's withdrawal from the EU - a "SuperCanada" style trade deal.
The relationship between the US and China continues to be strained after the APEC conference over the weekend. Vice President Mike Pence piled pressure on China in his address as he explained that "China has taken advantage of the United State for many, many years and those days are over". No doubt investors will be monitoring Trump's upcoming meeting with Xi in Buenos Aires for the G-20 meeting, interesting to see how talks develop. The meeting is expected to take place between the 30th of November to the 1st of December.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
BHP Billiton has settled a dispute with the Australian government relating to sales of raw materials. The firm will pay £386 million in additional taxes.
McBride has sold its European personal care liquids business to Royal Sanders Group for £12.5 million.
LondonMetric said it sold its retail park in Ipswich for £22 million.
TSB appoints Debie Crosbie as new CEO, replacing Paul Pester whom resigned after the banks IT downfall which left nearly two million customers losing access to online banking services earlier this year.
Fairfax, an Australian based media company, has got the approval of its shareholders to merge with Nine Entertainment which will cause a huge shake-up of the Australian media industry.
Bakkafrost upgraded to neutral at SpareBank
Novartis upgraded to buy at Goldman
Oerlikon upgraded to buy at SocGen
Arkema downgraded to sell at Goldman
Swatch downgraded to neutral at MainFirs
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Another ‘Brexit Breakthrough’ Falls Apart
Yet another potential breakthrough in the Brexit stalemate seemed to be hashed out at the beginning of this past week following hours of legal negotiation and closed doors discussions. Supposedly, a draft bill was worked out that both the Prime Minister and top European Union negotiators were comfortable moving forward with. If there were only two parties which needed to be satisfied in this divorce, that would be that. However, there are multiple parties whose needs in this debate are collectively at opposite ends of the spectrum. And, that inability to satisfy all these necessary groups once again torpedoed hope of progress. After hours of one-on-one meetings with her cabinet, the PM announced that she had received the support of her council only to see the foundation crumble again when a number of her senior cabinet members suddenly resign. And so, the confusion remains and time to work out a viable solution winds closer and closer to zero. It is important to remember the complexity involved in withdrawing from the EU – a move that has never happened in the collective’s history. Approval of the deal is only the first stage. Consent needs to be offered by all member governments and the technical steps need to be implemented in preparation for the first day of the actual split (March 29, 2019).
So, even though politicians continue to voice optimism and time, the reality is that their initial assessment was the deal was necessary months ago in order to facilitate a reasonable transition. Moving forward, each week that passes without agreement is going to be met with exponentially greater concern by global investors and businesses. Inevitably, to make the critical breakthrough, one of the major vested parties will need to capitulate on a key point of their position. Remaining in the customs union for the indefinite future for work around on the Irish border is one primary sticking point. It remains an outcome of a hard break or soft withdrawal that keeps the United Kingdom one foot in the Union against the wishes of the Brexit supporters with a black-and-white interpretation of the referendum back in 2016. In my view, there are two general outcomes for this standoff: a compromise or no deal. There are many different possible variants for how the separation can look – with their pros and cons, virtues and vices. Yet, each would represent a plan.
Alternatively, a failure to find common ground will disadvantage the United Kingdom and the European Union (more the former than the latter if you really want to keep score). An agreement – any agreement – is needed to prevent a European crisis from developing. And, a crash out would almost certainly start a crisis for the region. Global economic and financial conditions are already tenuous as it is with numerous other threats prodding our over-inflated, speculative balloon including trade wars, Italy threatening EU fiscal stability and recognition of the limits of effectiveness for global monetary policy. A recession-inducing and short-term credit crisis arising from a messy break in this event is certainly one of catalysts broad and acute enough to start the wheels turning on a global scale.
Remembering the Volatility and Volume Relationship for Thanksgiving
We are heading into a known draw in global liquidity this week. The Thanksgiving holiday is distinctly a US market closure, but the break in liquidity from a major financial hub is so well-known – and inconvenient – that the world tends to accommodate the drop in market depth. There is an important measure of habit that fulfills seasonal expectations in performance and activity level year in and year out. If you believe a speculative run that is starting to form will hit a road block because the subsequent session will drain half of the world’s liquidity, would you take the outsized risk exposure in hopes that the drive is so remarkable that it will overcome the disruption? There is one particular scenario for which I believe that an exception to establish an explicit trend despite a thinned market would actually occur: a panic-induced risk aversion.
Greed is difficult to gain foothold as opportunities are not often seen as so fleeting as to require such a quick reaction as to override a contented sideline exposure. That said, a sudden crash in the market that puts in jeopardy a fund manager’s or individual’s capital can certainly override confidence in a quick burn. Ultimately, there is a distinct relationship between volatility and volume – or, in more universal abstracts activity level and participation. In a bit of a ‘chicken and the egg’ parable, it is somewhat self-evident that volatility and volume move hand in hand; but not which leads the other. So long as there isn’t an overwhelming threat to the global financial system for which European, Asia and North and South Americans (who are not the US) are driven to flee regardless of America’s participation; the low volume will inspire low volatility.
And, for those that have not kept tabs on the VIX or other implied volatility measures, this aspect of the market is considered a ‘risk’ measure with an inverse correlation to benchmark capital market exposure like a long equities index position. If, on the other hand, there is a sharp increase in volatility, it will either draw more volume in to facilitate the development of a trend or cause an extreme response in the market similar to a tsunami gaining height as the water’s depth decreases heading into shore. Normally, I would be little concerned about conditions ahead, but given the list of systemic threats that circle just outside of the market’s comfort zone, it would be risky to assume quiet.
A Trade Deal – No Trade Deal – No Credibility
It is getting difficult to believe updates on the United States’ position in the global financial system and the prospects of the country’s growth moving forward. It has been a feature of the landscape for years (well into the past administration) to see the promise of an economic improvement crushed by political gridlock. However, the defusing of confidence is happening more rapidly, arising from within a single party and the stakes have grown so much larger through subsequent years of speculative build up. A good example is the infrastructure program that has been touted since the 2016 Presidential campaign for which both Republican and Democratic front-runners vowed to pursue to accelerate growth. Now passed the mid-terms, we have not seen progress made on the fiscal stimulus (though the tax reform and regulatory rollback did earn some points for the buoyancy).
President Trump referenced his willingness to return to the effort this past month, but Senate leader Mitch McConnell threw cold water on market hopes when he said the program would not be considered unless it paid for itself – very difficult to do after a tax cut. An infrastructure bill would be an ‘addition to the economic outlook’, while an end to the trade war would reflect the ‘removal of a threat’. Said removal has been something the market has harbored some measure of hope would occur and likely one of the key reasons risk assets like US equities have not imploded. Trump seemed to give traction to that confidence earlier this month when he said that progress was being made in negotiations with China and a deal was on the way after a phone call with his Chinese counterpart, President Xi. The rally that followed those remarks however were quickly stifled when his chief economic advisor outright contradicted the President’s assessment and instead said he was even more concerned about the future than he was previously.
One false dawn is enough to undermine the market’s confidence in taking such remarks in the future at face value, but a second time within a few weeks will almost ensure it. This past week, Trump again said a deal would be done with a short list of items left to work out and the need to apply the last tranche of tariffs against the country perhaps not necessary. Before those remarks could take any serious traction, White House officials followed up by saying the market should not read into his remarks. They seemed self-explanatory with no interpretation necessary, so the check reads as outright contraction – a move that will certainly curb the use of forward guidance into the future. If you want to see the fallout from losing the ability to direct market’s to views for the future, look to Japan or Switzerland.

Weaker sentiment: Risk aversion continues to plague global markets. Despite some positive developments on Friday regarding the US-China Trade War and US Federal Reserve policy, confidence appears to be lowly, resulting in a general flight to safety. It was telling that the NASDAQ couldn't close higher along with the Dow Jones and S&P500 on Friday: the desire to jump into growth stocks keeps diminishing in this market. It raises the risk that market participants have internalised the idea that now is not the time to be chasing capital gains in high-multiple shares. The momentum chasers are being unquestionably washed out of the market, with punters changing strategy from one of "buy the dips" to "sell the rally".
Missing conviction: It can be at these points in which moves to the downside are exaggerated because of an overall bearish bias. Assessing volumes are a terrific indicator of this, and currently and on balance, the days when Wall Street closes higher has generally coincided with days when volumes are relatively thin. The dynamic implies a lack of conviction from the buyers and sets up opportunities for aggressive sellers to profit from rallies in the market. The ASX200 demonstrated this well on Friday, where after a rather volatile week that ended with the index closing 0.10 per cent lower, intraday rallies in Aussie shares were flimsy and quite fleeting, revealing a tangible unwillingness by traders to take long positions in this market.
Less information, more volatility? It will be curious to see how this theme holds in the week ahead. There is such a dearth of fundamental data: the economic calendar is light and US earnings season is effectively done-and-dusted. Traders will have no choice but to focus on the handful of significant geopolitical stories playing out, all in the backdrop of continued speculation about the very core concerns regarding US interest rates. It's a recipe with all the ingredients for a volatile week, if market participants struggle to price in the many vacillating variables moving markets. Watching how the VIX behaves will be the starting point for many-a trader, to get a gauge on to what degree fear and uncertainty exists.
Geopolitics: It's conceivable that a new development in Brexit and/or the Trade War could shift sentiment very rapidly. There is a sense a breakthrough -- whether positive or negative for markets -- is upon us in both of those issues. Theresa May's Prime Ministership and her Brexit deal will face an existential threat this week, the possible outcome being a successful no-confidence motion in the Prime Minister, and subsequently the death of her Brexit deal. Trade War negotiations have ostensibly improved, however there are many mixed messages coming from both the US and Chinese governments regarding what this month's planned meeting between Chinese President Xi Jinping and US President Donald Trump at the sidelines of the G20 will yield.
Slight to safety: An absence of certainty and clarity on both subjects has traders seeking safety. US Treasuries have rallied, with the yield on the 10 Year note falling to support at 3.07 per cent, a break of which could open downside to 2.95 per cent. The Japanese Yen has also been bid-up, closing last week's trade at 112.83, while the EUR bounced back above 1.14 -- and the GBP recovered some of its losses -- causing the US Dollar Index to pull back. Gold prices have spiked consequently, trading at $1222 per ounce. Other commodities have been supported by a lift in optimism regarding the trade war, with Copper and aluminium closing last week high, however oil prices still appear vulnerable to the downside, as concerns of a global over supply persist.
The Aussie pops: Bringing it back closer to home: the Australian Dollar has been a major beneficiary from the weaker greenback on Friday. The Aussie Dollar has broken resistance at 0.7310, to open upside now toward the 0.7450 mark. The trend of US Dollar strength ought not be considered over yet: the yield advantage of holding US Dollars remain and looks likely to persist as the Fed maintains its rate hiking cycle. The tremendous amount of short positioning in the Australian Dollar (still), however, means that a continued pop higher in the A-Dollar is possible, before the more structural factors relating to interest rates differentials reassert themselves. In the week ahead, any sign of a step forward in trade negotiations could fuel an Aussie Dollar rally, with the inverse naturally true if trade negotiations sour.
ASX today: Finally, the price on SPI futures is indicating a 17-point jump at the open for the ASX200. As alluded to earlier, a read on volume could be valuable today, especially if the market experiences upside. Of course, being a Monday, it will likely read lower irrespective, so perhaps the question should be to what extent volume deviates from the norm. The short-term trend is lower for the Australian share market and should probably considered so until a significant run back and beyond 5930 is achieved. A reason to buy into the market will be required to achieve this - something today is unlikely to deliver.
Looking at the key sectors that drive the ASX200 and the narratives shaping their activity, briefly: the financials could find themselves supported today by a small army of bargain hunters, but another poor showing from Aussie property on the weekend plus more from the Royal Commission this week could drag on the banks; a sluggish day for the NASDAQ on Friday could indicate weakness in the high-multiple healthcare stocks; while the modest lift in commodity prices to end last week, along with the very slightly brighter outlook in the trade war, may benefit the miners.

Expected index adjustments
Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 19 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video.
NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange.
Special dividends this week
Index
BBG Code
Date
Summary
Amount
MEXBOL
WALMEX* MM
26/11/2018
Special Div
45
RTY
WING US
23/11/2018
Special Div
305
RTY
SBSI US
20/11/2018
Special Div
2
How do dividend adjustments work?
As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
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